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Document of The World Bank Report No. 13738-CO STAFF APPRAISAL REPORT COLOMBIA SANTAFE I WATER SUPPLY AND SEWERAGE REIABILITATION PROJECT OCTOBER 20, 1995 Environmnet & Urban Development Division Country Department III Latin America and the Caribbean Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

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Page 1: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

Document of

The World Bank

Report No. 13738-CO

STAFF APPRAISAL REPORT

COLOMBIA

SANTAFE I WATER SUPPLY AND SEWERAGE REIABILITATION PROJECT

OCTOBER 20, 1995

Environmnet & Urban Development DivisionCountry Department IIILatin America and the Caribbean Region

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Page 2: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

CURRENCY EQUIVALENTS

Currency Unit = peso

US$1 = 831 pesos (December, 1994)

all figures in dollars unless otherwise noted

WEIGHTS AND MEASURES

Metric

ABBREVIATIONS AND ACRONYMS

BOT - Build-Operate-Transfer type of contract

BRC - Bogota River Committee

Capital District - The city of Bogota

CAR - Corporacion Autonoma Regional

CONFIS - Consejo Fiscal del Distrito Capital

CRAS - Comision Reguladora de Agua y Saneamiento

DAMA - Departamento Administrativo del Medio Ambiente

DAPS - Direccion de Agua Potable y Saneamiento

DNP - Departamento Nacional de Planeacion

DTF - Passive Annual Interest Rate in Colombia

EAAB - Empresa de Acueducto y Alcantarillado de Bogota

EEB - Empresa de Energia de Bogota

FINDETER - Financiera de Desarrollo Territorial

GIS - EAAB Geographical Information System

IDB - Interamerican Development Bank

INDERENA - Former National Environmental Agency

JAL - Juntas de Administracion Local

LIBOR - London Inter-Bank Offering Rate

ME - Ministry of Environment

MIS - EAAB Management Information System

NGO - Non Governmental Association

PP - Performance Plan

SINA - National Environment System

SSPD - Superintendencia de Servicios Publicos

Domiciliarios

FISCAL YEAR

January I - December 31

Page 3: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Staff Appraisal Report

CONTENTSLOAN AND PROJECT SUMMARY ............................................................................. ;L WATER AND SANITATION SECTOR OVERVIEW ............................................................................. 1A. ECONOMIC BACKGROUND ............................................................................................................. IB. INSTITUTIONAL AND LEGAL FRAmwoRK ...................................... 1....................................................................... I

C. CU RRENT SECTOR ISSUES ............................................................................................ , 21. Countrywide Issues ........................................................................................... 22. Bogota-Specific Issues ........................................................................................... 4

D. LESSONS FROM BANK EXPERIENCE ........................................................................................... 6IL EMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP (EAAB) .................................................. 7A. GENERAL ............................................................................................. 7

B. RECENT FINANCiAL PERFORMANCE ........................................................................................... 7

C. INSTITUTIONAL CHANGES ......................................... 9

D. PERFORMANCEPLAN. , ,. ,.10

E. PRIVATE SECTOR PARTICIPATION ....................................... 10

THE PROJECT ............................ 11A. BACKGROUND ........................................ 1 B. PROJECT OBJIECTIVES AND RATIONALE ....................................... 1 C. PROJECT DESCRIPTIO... 12D. PROJECT COST ............... 14

E. ECONOMIC EVALUATION ................................................................. 15

1. Project Justification and Benefits ................................................................ 15

F. FINANCIALANALYSIS ................................................................ 161. Project Financing Plan ................................................ 162. Projected Financial Results ............................................... 183. Tariff Structure and Main Financial Covenants ............................................... 204. Pension Fund ........................................ 205. Asset Revaluation and Financial Rate of Return ............................................... 216. Financial Risks and Sensitivity Analysis .............................................. .. 227. Other Financial Matters ............................................... 228. Accounts and Audit ............................................... 23

G. ENVRON MENTAL IMPACT ............................................... 23H. SOCIOECONOMIC IMPACT ............................................... 25

1. PROJECT RisKs AND SAFEGUARDS ................................................ 25

IV. PROJECT IMPLEMENTATION ARRANGEMENTS .............................................. 26A. STATUS OF PROJECT PREPARATION .............................................. 26

B. ORGANIZATIONAL ASPECTS ............................................... 26

C. PROCUREMENT .............................................. 28

D. DISBURSEMENT .............................................. 29E. MONITORING AND IMPACT INDICATORS ............................................... 30

F. SUPERVISION .................................................. 31

V. AGREEMENTS REACHED AND RECOMMENDATION .............................................. 31

This report is based on the findings of an appraisal mission that visited Colombia from November 29 to December 15,1993. Updating missions visited BogotA in May 1994, and following the change of government, in September, 1994, andagain in February 1995, after the new Mayor took office, in order to complete the appraisal. The missions comprised,inter alia, Messrs/Mlmes. P. Hari Prasad (Task Manager until May 1994), R. Venkateswaran (Task Manager since May1994), M. Libhaber, S. Contreras, 0. Alvarado, F. Feld, T. Serra, (all of LA31N and/or LA3EU), G. Yepes (TWUWS),M. Mejia, D. Graham (LATEN). Ms. C. van den Berg (LA3EU) prepared the economic analysis of the project. Messrs. P.Ludwig (LA3IN) and E. McCarthy (LA3EU) were the responsible Division Chiefs during the appraisal period. Messrs. G.Yepes and V. Gouarne acted as peer reviewers. The Projects Advisor and Department Director are Messrs. R. Crown andP. Isenman ( Mr. Yoshiaki Abe was Director until October 1, 1995).

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ANNEXESAnnex I Population Growth, Water Demand And Supply Balance In BogotA Metropolitan Area 34Annex 2 Water Supply, Sanitation And Pollution In The BogotA Metropolitan Area 40Annex 3 Environmental Issues 53Annex 4 Past Bank Experience In The Water & Sanitation Sector In Colombia 58Annex 5 EAAB Institutional Assessment And Performance Plan 61Annex 6 Private Sector Participation Program 72Annex 7 Detailed Project Description 75Annex 8 Cost Estimates 81Annex 9 Economic Analysis: Methodology And Results 86Annex 10 Financial Evaluation: Assumptions & Results 100Annex 11 Water & Sewerage Tariff Structure And Issues 115Annex 12 Responsibilities For Project Implementation 119Annex 13 Project Implementation Schedule 122Annex 14 Monitoring And Impact Indicators 133Annex 15 Limits On Types Of Procurement And Prior Review Thresholds 138Annex 16 Bidding Packages Agreed During Appraisal 139Annex 17 Allocation Of Loan Proceeds 143Annex 18 Disbursement Schedule 144

MAPSIBRD 26608 General Layout and Vulnerability Control Component WorksIBRD 25737 Proposed Primary Sewerage NetworkIBRD 25738 Proposed Stornwater Drainage SystemIBRD 25739 Proposed Primary Water Distribution NetworkIBRD 25740 Proposed Secondary Water and Sewerage NetworksIBRD 25741 Proposed Sewerage Rehabilitation WorksIBRD 25742 Proposed Water Supply Rehabilitation WorksIBRD 25743 Poverty Indicators in the Areas of Proposed Secondary Water Supply and Sewerage Networks

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ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Staff Appraisal Report

Loan And Project Summary

Borrower: Empresa de Acueducto y Alcantarillado de Bogota (EAAB, Bogota WaterSupply and Sewerage Company)

Guarantor: Republic of Colombia

Terms: (i) a first loan for US$87 million (60% of total) on Fixed Rate Terms forSingle Currency Loan for up to 15 years. Each semester's aggregatedisbursements (Disbursed Amount) would have a grace period of 3 years anda final maturity of 9 years, both beginning from the rate fixing date for suchDisbursed Amount; (ii) a second loan for US$58 million (40%'o of total) onLibor-based terms for Single Currency Loan involving 17 years repayment,including a grace period of 5 years.

Interest Payment Dates andRate Fixing Dates: May 15 and November 15

Commitment Charge: 0.75% on undisbursed balances, beginning 60 days after signing, less anywaiver.

Financing Plan:

Phase 1 % ofSource Local Foreign Total (incl Total Cost

Taxes)World Bank 0.0 145.0 145.0 (35.0)EAAB 77.9 2.6 120.3 (29.0)Transfers from District 118.9 0.0 118.9 (28.7)Private Sector 0.0 30.0 30.0 (7.2)

Total 196.8 177.6 414.2 (100.0)

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Project Costs (in US$ milion):

PHASE 1 PHASE 2 TOTAL SANTAFE 1 PROJECT

LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL % FOREIGN

A. Vulnerability Component 20.3 30.5 50.9 5.9 8.9 14.8 26.3 39.4 65.7 60.0

B. PrimarySewerage & Drainage 41.1 31.7 72.8 14.8 24.8 39.6 56.0 56.5 112.6 60.2

C. Primary water Distribution 7.0 16.8 22.9 11.3 33.5 44.8 18.3 49.3 67.6 72.9

D. Expansion of Secondary Networks 30.0 20.0 49.9 36.0 24.0 59.9 65.9 43.9 109.9 40.0

E. Rehabilitation of Secondary Networks 6.5 6.5 13.0 5.8 6.8 11.6 12.3 12.3 24.6 50.0

F. Institutional Strengthening 12.0 24.8 36.8 0.0 0.0 0.0 12.0 24.8 36.8 67.4

G. Technical Assistance 17.3 17.3 34.6 13.0 13.0 26.1 30.3 30.3 60.7 50.0

H. Environmental Component 3.1 4.7 7.9 0.0 0.0 0.0 3.1 4.7 7.9 60.0

BASE COST (June 1993 Prices) 137.4 151.3 238.7 86.9 110.0 196.9 224.3 261.3 485.6 53.8

Physical Contingencies 13.7 15.1 28.9 8.7 11.0 19.7 22.4 26.1 48.6 53.8

Price Contingencies 45.6 11.2 56.8 42.2 17.9 60.1 87.8 29.1 116.9 24.9

TOTAL PROJECT COST 196.8 177.6 374.4 137.8 138.9 276.6 334.5 316.5 651.1 48.6

Import Duties & VAT 39.8 0.0 39.8 27.1 0.0 27.1 66.9 0.0 66.9 0.0

TOTAL INVESTMENT COST 236.5 177.6 414.2 164.9 138.9 303.8 401.4 316.5 717.9 44.1

Disbursements (in US$ million):'

IBRD Fiseal Year 1996 1997 1998 1999 2000 2001 2002

Annual 19.8 29.9 44.4 34.9 13.6 1.7 0.7

Cmulative 19.8 49.7 94.1 129.0 142.6 144.3 145.0

% Cunulative 13.7 34.3 64.9 89.0 98.4 99.5 100.0

Totals may not add due to rounding

Estimated Economic Rate of Return: 17%

Staff Appraisal Report: 13738 CO

MAPS LBRD 26608, LBRD 25737, IBRD 25738, IBRD 25739, IBRD 25740, IBRD 25741, IBRD 25742, IBRD 25743

1 Loan Effectiveness in December 1995.

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I. Water and Sanitation Sector Overview

1. Colombia, with a population of about 35 million, 70% of which is urban, has made impressivestrides in expanding its water and sanitation sector in the past decade. Over 76% of the population nowhas access to drinking water, while sanitary sewerage covers over 64% of households in the country. Thecoverage levels in the four biggest urban centers of Bogota, Medellin, Cali and Barranquilla, whichtogether account for 30% of the population, is substantially higher, at 88% for water and 85% forsewerage. Nevertheless, major institutional problems persist, having their origin in highly politicizedutility companies and a lack of accountability for performance.

A. Economic Background

2. The administration of President Sanper, who took office in July 1994, is continuing the basic policyof liberalization of the economy, that was the cornerstone of the economic reform process started by theprevious administration of President Gaviria, but with a renewed focus on expanding and improving theprovision of basic infrastructure and services to the majority of the population.

3. Consistent with this objective, the priorities are now to consolidate prudent macroeconomicmanagement through restraint of the fiscal deficit and inflation, further reforms in key structural areas(trade, finance, labor legislation), privatization of major public institutions and activities (ports, railways,banks), and a sharper focus on improving the coverage and quality of services such as health, education,and sanitation, through a public expenditures program concentrated in the social sectors and infrastructure,and policies to encourage the private provision of public services (e.g. through bidding out port and railwayoperations and electric power generation). The Government's strategy also aims at promoting theestablishment of a more responsive system of governance based on decentralization and communityparticipation, through continued restructuring of state agencies and development of more adequateregulatory structures and mechanisms.

4. The Bank's 1993 CSP endorsed the previous Government's priorities and approach. Inrecent discussions with the incoming Government the Bank has emphasized continued support inaddressing infrastructure and human resource development needs and greater emphasis uponimproved targeting mechanisms for the poor. Improving project implementation will continue tobe a major priority, and among the critical conclusions is the importance of ensuring quality atentry through addressing major institutional and systemic issues before going ahead with lendingoperations.

B. Institutional and Legal Framework

5. A new regulatory framework conducive to efficiency improvements, expanded private sectorparticipation in the delivery of public services, greater accountability, and a more arm's length relationshipbetween the utilities and local politicians was legislated by the Government as Public Services Law (Law142) and approved by the outgoing legislature in July 1994 (see para 32.). Through various modemizationdecrees issued in December 1992, the National Government also introduced several modifications in sectorpolicies, institutions, operations, and finances, aimed at promoting sector reforms. The most importantreform took place in the Ministry of Development, with the creation of the Vice-Ministry of Water,Housing and Urban Development, which took over responsibility for the sector, previously under theMinistry of Public Works. Two new institutions were also created in the Ministry of Development: thePotable Water and Sanitation Directorate, "Direccion de Agua Potable y Saneamiento" (DAPS), and the

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Water Regulatory Commission, "Comision Reguladora de Agua y Saneamiento" (CRAS). At the sametime, the environmental functions in the Ministry of Health were transferred to the newly created Ministryof the Environment (ME). In addition, under the Public Services Law, the Government has also establishedthe Superintendency of Domestic Public Services, "Superintendencia de Servicios Publicos Domiciliares"(SSPD). The SSPD is expected to be a powerful entity with responsibilities for general administration andcontrol of policies, including establishing uniform accounting systems, supervising proper administration ofsubsidies and enforcing regulations. In view of the importance of public disclosure of the operatingperformance of public services, SSPD has an important role in disseminating information on a comparativebasis of relevant statistics and operational performance indicators. As indicated in the following paragraph,the Bank's contuining sector dialogue will monitor SSPD'd overall development and assist it in fulfilling itsimportant functions.

6. The CRAS includes the Minister of Development who also serves as chairman, the Minister ofHealth, the Director of DNP and three full time experts. It oversees waste water, sewerage and sanitationservices, with tasks including the definition of efficiency criteria and quality standards, promotingcompetition for management of services, curtailing monopolistic and restrictive practices, resolvingconflicts among public enterprises, setting tariffs for regulated public services, establishing generalformulas and criteria for pricing and deciding the degree of autonomy for tariff adjustments among sectorcompanies. The other sector institution DAPS has several functions oriented at supporting serviceactivities of nation-wide scope, such as preparing, in coordination with DNP, the sector development plan,providing technical assistance to local and regional sector institutions, promoting and coordinating sectorresearch, preparing and coordinating a national training program and promoting national programs andplans, especially for rural areas. The Government has expressed interest in Bank assistance instrengthening these newly established institutions and enabling them to fulfill their respective roles.

C. Current Sector Issues

1. Countrywide Issues

7. Main Sector Problems. The water sector in Colombia is comprised of just over 1,000 separateurban water and sanitation companies ranging in size from about 900,000 to about 1,000 households served.These companies reflect a wide variety of ownership, efficiency and operational patterns and mnany of them haveadditional functions (e.g., services covering solid waste, markets, slaughterhouses, etc.). As outlined in the 1990-1994 Social and Economic Development Plan, until the end of the last decade, this sector suffered from a widearray of problems including: a highly centamlized system; institutional instability; low national coverage; poorservice quality; inefficiencies at various administrative and operational levels; lack of qualified personnel;inequitable coverage and exclusion of many of the poorest households and marginal areas. After six extensivereorganizations in the system over the past five decades, and with about US$4.5 billion invested over the pastthree decades, coverage increased significantly; however, investment targets in terms of access to established andreliable water and sewerage service was still limited not only to the wealthier groups in urban areas but also interms of urban-rural coverage. While detailed records on quality, reliability of service, etc., are not available;sample data indicate that although most of the large systems provide close to 24 hours of service, manyneighborhoods served by such systemns may not have service for days or they may have frequent interruptions.Also, there are several companies where the entire system suffers sustained significant down-time for a variety ofinstitutional, technical, financial and other reasons. At the national level, only about 50% of the water companieshave treatment plants and of these, only about 50% (primarily the larger ones), provide treated drinking water ona regular and consistent basis.

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8. Environmental Degradation. Many of Colombia's waterways suffer major environmental damagefrom pollution due to domestic sewage, industrial effluents, solid waste, pesticides, or oil pipeline leaks.Government estimates indicate that in 1991, almost all of the industries in and around the main urbancenters in Colombia were discharging effluents in rivers and coastal waters, of which about 40% went inthe watershed of the River Magdalena (excluding the Bogota River) and 35% in the Bogota River.Additionally, increased sedimentation is caused by watershed degradation and toxic contamination frommining operations. Wastewater treatment facilities are almost totally absent; currently, only about 2% of theeffluent of the sewerage system nationwide receives any treatment before disposal. The continued rapid growthof urban populations at rates much higher than the national average adds to the pollution problem of theseurban centers and highlights the urgent need for sewage treatment facilities.

9. While Colombia's pollution-control laws are quite comprehensive, enforcement is generally weak andpenalties, even when they are imposed, are less than the cost of compliance. Institutional weaknesses, poorinter-agency coordination and overlapping mandates have also contributed to the present situation. As aresult, and because of such additional factors as cost-benefit externalities, multiple pollution sources, non-compliance with cost-recovery mechanisms and a short-term focus to date, it has been almost impossibleto reach consensus among the various interest groups.

10. Solid waste collection is available to about 60% of the urban population and non-existent in ruralareas. System inadequacies contribute to several environmental and health hazards and this is also asignificant source of water pollution. Recent efforts to privatize the BogotA solid waste collection systemhave resulted in substantial improvement, although deficiencies have recently become apparent in the partof the city not so far covered by private operators (for which emergency remedial measures have beentaken).

11. Health Impact. Diseases associated with unsafe water and inadequate sanitation are endemic inColombia; diarrheal diseases and enteritis are among the five most important primary causes of deaths inall age groups up to fourteen years. Among infants in their first year, they are the second leading cause ofdeath and for those below five years, they are the leading cause. Although substantial progress has beenmade in the past two decades in reducing mortality and morbidity in the country, the provision of safewater and adequate sanitation is required to complement other efforts by the Govenmment in the publichealth field in order to reduce such incidence from water and sanitation related diseases to intemationallyacceptable levels.

12. Government's Role in the Sector. During the early 1900s, the task of providing water to variouscommunities was one assumed by individuals, private water companies or municipalities, with some CentralGovernment assistance. As urbanization made this task more complex and unfulfilled needs grew, the CentralGovernment began to assume a greater role in designing, contracting and even managing sector works. Thismarked the beginning of "growing centralism" which was formalized in 1936 with the creation of a special waterdivision in the Ministry of Public Works with tasks which included the design and supervision of infrastructureworks. As the need for a more specialized finance sector entity became apparent, the Government established theFondo de Fomento Municipal in 1940 to finance water works, supervise construction and approve sector studies,plans and budgets.

13. The Instituto de Fomento Municipal (INSFOPAL) was later created with responsibilities for designing,financing and contracting sector works in several urban areas. INSFOPAL opened offices in each Departmentalcapital and became the main sector entity during this penod. With growing concern that the water needs of ruralareas were not being attended, in 1968 the Government established the Instituto Nacional para Prograrnas

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Especiales de Salud (INPES) im the Ministry of Health to attend to such needs. The Government thusconsolidated its position as the principal actor im the sector throughout the country

14. Attempts to provide greater autonomy for sector entities were initiated in 1975 after a new governmentcanie into office. The regional offices of INSFOPAL were renamed Empresas de Obras Sanitanas (EMPOS)and the central unit of INSFOPAL was then supposed to relinquish its direct intervention in the sector andbecome a national coordinating and general assistance entity However, the weak state of many local EMPOSresulted in INSFOPAL continuing with its administrative, executing, control and financing role. By the early1980s the system was in a deep financial crisis and in 1987 the Government decided to abolish INSFOPAL andtransfer the assets of the EMPOS to the local authorities. Financing for sector entities followed a similarchanging path where, between 1976 and 1987 there were four different ministries with financing responsibility forsector activities.

15. As outlined in the 1991-1994 Development Plan, the Government's main sector goals were: (a)restructuring of existing institutions to promote further decentralization; (b) increasing national householdcoverage for water and sewerage services; (c) improving the quality of treated drinking water from publicsystems; and, (d) formulating and initiating implementation of a wastewater treatment strategy for thelargest cities.

16. Estimates of financial needs for the plan period were put at about US$930 million (not includingpollution control and sanitation activities in the five largest cities, which were to be studied and financedseparately). Of the US$930 million, about US$440 million were to be either credit or own resources of thefour largest metropolitan areas; about US$150 million were to be from the Bank's ongoing water supplyand sewerage sector loan (2961-CO); US$80 million were expected from central government subsidies toareas which made special efforts to capture counterpart resources; and the rest was to be from localcounterpart sources, grants from the Integrated Rural Development Fund (DRI), credits from the CajaAgraria for rural works and to a lesser degree from the Regional Development Corporations (CORPES),Departmental Governments, the Ministry of Health, and UNDP assistance. As of the end of 1993,approximately, 65% of the above forecast of investments had been executed by the authorities. By the endof 1994, approximately 80% of the planned investments were expected to be completed.

17. Despite the increasing levels of investment flows into the sector, continuing administrativeweaknesses and inefficiencies are adding to the overall cost of delivery and contributing to premature andcostly additions to capacity. In particular, continuing high levels of Unaccounted-for-Water (UFW) in themajor municipal systems are leading to high operating costs, low revenues and increasing vulnerability ofservice due to capacity and distribution constraints. The high levels of UFW are attributed to a large extentto inefficient and fraudulent commercial practices, as well as to system deficiencies caused by inadequatemaintenance. The new Public Services Law has been designed to arrest these tendencies by forcingmunicipal governments to create financially and administratively autonomous public utilities, byaccelerating the introduction of the private sector in the provision of public services and by instillingfinancial and managerial accountability and responsibility. The proposed project directly responds to theseabove general concerns, which have been most acutely felt in the Bogota Capital District.

2. Bogota-Specific Issues

18. Demand: The major issue facing the Capital District of Santafe de Bogota (Bogota) is the rapidgrowth in water demand that will require major investments in developing new and more costly watersources to avoid rationing in the near future. In 1994, BogotA (including the surrounding municipalities)

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had a population of 6.5 million, growing at a rate of 2.7 percent p.a. The urban population is projected toreach 8.0 million by the end of the century and lose to 10 million by the year 2010. A detailed analysis ofpopulation and demand projections is presented in Annex 1. According to official statistics, there are someone million urban poor in the Capital District. It is also estimated that some 100,000 lack access toadequate water supply services and about 750,000 to adequate sanitary toilet facilities. In addition, anestimated 500,000 live close to highly polluted water courses, the Bogota River and its tributaries that runthrough the city, or in low areas prone to frequent flooding. Recent studies commissioned by EAAB showthat, under the present rate of growth of demand, existing water sources can at best serve the needs of theCapital district and the surrounding municipalities through the year 2014 (assuming continued decline inthe UFW, (see para. below)). Although better demand management would slow the pace of growth ofdemand, the sheer increase in population and income levels will continue to put pressure on the authoritiesto develop new water sources.

19. Water Supply: Service coverage in the capital area (for details see Annex 2) is high by nationalstandards. According to the 1993 census, 88% of the urban population of Bogota had access to watersupply services by house connection. The main issue facing the EAAB is the rapid increase inunaccounted for water (UFW) from 22% in the early 1970's to about 42% in 1990; UFW was about40% at the beginning of 1994. EAAB, under a study financed under the Bogota IV project (Loan 2512-CO), assessed the causes of this high UFW. The main cause, which accounts for about 65% of the UFW, isrelated to problems in the commercial system i.e., illegal connections, inaccurate consumer records,software tampering and faulty meters. The rest (35%) is mostly caused by leaks in the distribution systemand house connections and problems with macrometering. Based on these findings, EAAB has developed acomprehensive plan to reduce UFW to about 25% by the year 2000. Implementation of this plan hasbegun as an integral part of the Santafe I Project.

20. Given the relative size and strength of EAAB and the large economies of scale in water production, itis likely that its sphere of influence in the savanna of Bogota region will grow over time (see Annex 2).Water production capacity is limited to about 65% of the nominal capacity (836 million m3/year) becauseof constraints in the Tibito system. About 66% of the nominal capacity was utilized in 1992. The quality ofwater of the supply sources ranges from excellent as in the case of the Chingaza system that provides 55%of the system's capacity and comes from a highly protected and thinly populated area, to the Tibito systemthat provides 42% of nominal capacity, located in a relatively unprotected area subject to moderate levelsof urban and industrial pollution. All water supplies are treated and chlorinated to meet or exceed WHOdrinking water quality guidelines and there is a water testing and monitoring program to ensure that waterprovided to consumers meets these standards. In addition, there is a pollution abatement program underexecution in the upper basin of the Bogota River that will improve the raw water quality at Tibito. Themain issue in this regard is the vulnerability of the primary water distribution system from the two mainsources (i.e., Tibito and Wiesner treatment plants)2 to potential breakdowns with consequent disastrouseffects on EAAB's ability to meet the average daily demand without resorting to water rationing forprolonged periods (Annex 2). The project addresses this particular issue with special emphasis on reducingsystem vulnerability.

2 The 75 km Tibito pipeline has well-documented structural deficiencies that remain highly vulnerable. Th epipeline shows astaedy increase in ruptires even at the present opearting flows which are less than 40% of the design flow due to the inability ofthe Tibito plant to deliver its rated capacity. The Usaquen tunnel is vulnerable due to the lack of a back-up facility in case offailure. The present Usaquen tunnel provides the only outlet for nearly 70% of the water delivered into the EAAB system fromthe Wiesner plant.

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- 6 -21. Sewerage and Drainage. Coverage of the sewerage systems, also high by national standards, reaches85% of the population (see Annex 2). The drainage system covers about 70% of the population. However,low lying areas of the city are subject to periodic flooding, exacerbated in part by control structures on theBogota River needed to satisfy irrigation and hydroelectric power generation requirements. The sewerageand drainage systems are combined in the old sections of the city. In other areas, sewerage and drainage areseparated. In practice, due to lax enforcement, many illicit or unauthorized connections have been made tothe two systems and therefore they operate, to some extent, as a combined system. The problem created bythese illicit connections will be studied in detail as part of the proposed studies to reduce pollution in theBogota River, as they are a determining factor in the definition of specific remedial actions. A detaileddiscussion of water-related environmental issues in the Bogota Metropolitan area is found in Annex 3.

22. The domestic and some of the industrial waste water generated in the Bogota area is finally collectedby interceptors parallel to existing natural water courses that discharge their waters, without treatment,directly back to these courses below populated areas. As the city has expanded, some of these dischargesare now being made in densely populated areas, thus preventing an orderly urban growth. In addition,overflows of the combined sewerage system are also often discharged, under all weather conditions, to thedrainage canals in densely populated areas. These conditions are detrimental to a pleasant urbanenvironment, and they also pose high health risks to the population.

D. Lessons from Bank Experience

23. Since 1968, the Bank has made 13 loans totaling about US$555 million for water supply andsewerage development in Colombia. About 60% of total Bank loan funds (US$337.8 million) were grantedto five municipal water companies (in Bogota, Cali, Barranquilla, Cucuta and Palnira) through nineseparate operations. By far, the largest borrower has been the Bogota Water and Sewerage Company(EAAB) to which the Bank has lent US$261 million in four lending operations.

24. At present, the Bank is supporting sector investments through projects with the EmpresasMunicipales de Cucuta in Cucuta (Loan 2470-CO), as well as a multi-city lending operation through thenew national financial intermediary for municipal development, FINDETER (Loan 296 1-CO) for thefinancing of about 300 sub-projects in medium and small communities.

25. Lessons learned from implementation of previous and ongoing projects (see Annex 4) were applied inthe preparation of the Santafe I, where greater care was given to estimating water demand and consumptionlevels, to undertaking more detailed surveys for complex works prior to bidding, and to adopting a morerealistic implementation schedule than in the past projects. A comprehensive set of systemic solutions andstructural changes have been agreed and are now being implemented.

26. Overall, the main lesson from previous Bank projects with EAAB, and particularly Bogota IV, isthat institutional and financial issues must be addressed up-front, with the evolution of a strategicconsensus between key actors and the initiation of substantive actions, which can then be consolidated anddeveloped in a phased manner. This lesson is being applied in the proposed project, with the focus onstructural and systemic reforms. At the same time, the proposed project reinforces the focus on structuralreforms through a time-bound Action Plan, with a set of monitoring indicators (see paras 78. and 88, andAnnex 14) that will follow the progress of the reform process, leading to the ultimate structural andcorporate transformation of EAAB. The decision to phase the Bank's financing for the entire Santafe Iproject reflects lessons learned from past Bank experience as well. The second phase of Bank financingwould be linked to progress made by EAAB in achieving its Action Plan targets early on during project

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implementation and to a comprehensive review of progress (expected to be carried out after September 30,1997) in both physical implementation of the Santafe I project as well as in the implementation oforganizational and operational reforms.

H. Empresa de Acueducto y Alcantarillado de Bogoti ESP (EAAB)

A. General

27. The Borrower and implementing agency would be the Empresa de Acueducto y Alcantarillado deBogot,a, ESP (EAAB). EAAB was, until recently (see para. 32.), an autonomous municipal agency ownedby the Bogota Capital District. It has now been reconstituted as a Public Service Company of an Industrialand Commercial character as defined by the new Public Services Law and by the Organic Statutes of theBogota Capital District. A full description of EAAB and an assessment of its institutional capabilities ispresented in Annex 5.

28. From the early 1970's, EAAB grew rapidly and extended service coverage from an estimated 60% ofthe population in 1970 to over 85% by 1993, thanks in part to the implementation of the first four Bank-financed projects (see Annex 4). Water quality reached intemational standards and sewerage was extendedto nearly 80% of the population. Nevertheless, during the course of execution of the Bogota IV project,political interference increased, and, despite new investments in the water and sewerage system, EAAB'soperations began to suffer greater inefficiencies, staff levels ballooned, maintenance was neglected asoperating revenues failed to keep pace with rising costs (see para. 29 below).

B. Recent Financial Performance

29. EAAB's financial situation steadily deteriorated during the period 1988-92, mainly as a result of costoverruns in its construction program, which were financed with short-term debt, maturing long-term debt,and high and increasing labor costs. Thus, in 1990 debt service was twice the level it had been in 1989 anddoubled again in 1991; by 1992, labor costs had increased to 67% of working expenses from about 55% in1989. Net income continued to fall during this period and cash generation was increasingly insufficient tocover EAAB's heavy capital expenditure program and increasing debt service obligations. Table 1 belowsummarizes EAAB's financial performance over the past 5 years.

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Table 1: EAAB: Audited Financial Results (1989-1994)(in current Col$ million)

1989 1990 1991 1992 1993 1994Average Exchange Rate (ColSIUSS) 383 502 633 680 787 818Water Sold (Million m3) 301 306 321 328 338 340Average Tariff/m3 (incl. Bulk Sales) 111 156 209 266 320 416Revenue from Water Sales 33,468 47,917 67,318 87,431 108,113 141,800Total Operating Revenues 37,844 52,956 70,847 89,510 113,221 152,280Working Expenses (incl. Pensions) 19,133 24,719 35,865 38,319 50,057 66,277of which Personnel (incl. Pensions) 10,556 14,455 23,836 25,677 33,308 39,855Net Operating Income bef. Interest Charges 17,683 (2,001) (37,095) (7,390) (23,368) (2,001)Net Income (after Monetary Corrections) 10,469 8,194 5,881 144,211 (109,992) (25,720)Internal Sources 19,295 29,947 34,982 51,191 63,165 120,904Equity/Contributions/Transfers 2,252 2,142 5,778 9,991 28,977 6,312Borrowings 20,744 22,788 28,868 42,188 46,027 39,818of which Treasury Refinancing 0 0 0 0 14,095 26,576Total Sources 54,679 61,071 70,575 105,199 136,940 178,070Investments (incl. Santafe 1) 41,826 45,183 33,782 46,026 29,593 65,693Debt Service 9,792 18,068 36,424 37,584 55,737 57,710Changes in Working capital 3,061 (2,180) 369 21,589 16,056 6,421Total Applications 54,679 61,071 70,575 105,199 101,386 129,824Net Inc.(Dec.) in Surplus Cash 0 (0) 0 0 35,554 48,246Cumulative Cash Surplus 0 (0) (0) (0) 35,554 83,799Revalued Net Fixed assets in Use 462,372 700,898 886,257 1,065,241 1,042,260 1,089,178Current Assets 16,551 28,332 41,332 66,807 118,962 190,068of which Quick Assets 5,947 11,486 16,266 28,060 66,276 122,041less: Current Liabilities 38,509 58,118 66,865 78,394 74,829 101,142Total Assets 446,683 674,992 870,048 1,065,549 1,099,268 1,220,955Equity & Reserves 330,647 498,616 670,721 824,923 793,470 815,907Net Long Term Debt 90,959 136,636 144,422 155,230 181,352 201,572Other Long Term Liabilities (Net) 25,078 39,740 54,905 85,395 124,445 203,476Total Equity & Liabilities 446,684 674,992 870,048 1,065,548 1,099,267 1,220,955Quick Ratio 0.1 0.2 0.2 0.3 0.8 1.2Working Ratio (%) 55 58 66 67 67 44Return on Average Net Fixed Assets(%) 0.0 0.0 3.1 1.9 2.2 (0.2)Labor Cost as % of Working Expenses 55 58 66 67 67 60Self Financing Ratio (%) 23 26 (4) 30 25 96

30. For several years, under the Bogota IV project, the Bank signaled the urgency of corrective actions,and attempted to secure compliance with covenanted conditionality regarding financial performance. In1991, EAAB started a financial restructuring exercise which was part of a broad Action Plan. Water rateswere increased in real terms in 1991 and in 1992, and EAAB decreased its labor costs and its operatingexpenses, and obtained a long-term credit on concessional terms to complete the Bogota IV project.However, these measures were insufficient to arrest the deterioration of its financial situation. The internaldeficit widened in 1992 and by end 1992, EAAB had accumulated arrears to suppliers and contractorsestimated at about Col.$ 22,000 million (about US$ 30 million). It was also unable to fund its construction

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- 9 -programn, and experienced difficulties in meeting its debt service obligations. Throughout this period,EAAB operated with poor liquidity margins as evidenced by a Quick Ratio 3 far below 1.

31. This difficult financial situation was confronted by the National Govermnent in 1993, when itdecided to rescue EAAB and refinanced almost the entire foreign debt service becoming due in the secondhalf of 1993, and in the years 1994 to 1997 as part of a broader agreement for restructuring EAAB toachieve greater efficiency and accountability through a legally binding Performance Plan. In 1993, as aconsequence of this arrangement with the National Government, which effectively covered over 25% of thetotal debt service in that year, EAAB was able to generate net internal funds after debt service equivalentto about 73% of its investments4. At year-end 1994, EAAB showed a substantial level of surplus liquidity,available for initiating a significant investment program. Other elements contributing to EAAB's financialrecovery during 1993 and continuing into 1994, have been the payment to EAAB by the National andCapital District Governments of arrears on water sales, a drive to increase collections from customers andeliminate illegal connections, all parts of the Performance Plan.

C. Institutional Changes

32. The National Government and the Mayor of Bogota also took positive steps towards the resolutionof the underlying structural, institutional and financial, issues which led to EAAB's financial crisis in1989-92. In July 1993, the Government enacted the Decree-Law (Decreto-Ley 1421, July 21, 1993) thatredefined the organization and by laws of the Capital District and its public service companies. A salientpoint of this decreto-ley is that accountability of the Mayor and the General Managers of the city's servicecompanies has been sharply increased. The newly enacted Public Services Law has further strengthenedEAAB's autonomy in these crucial aspects, and which mandates that all public utility companies beorganized as either municipal commercial and industrial enterprises or be transformed into shareholdingcompanies with significant inputs of private capital. As a consequence, although the Mayor approvesEAAB's budget (through the Capital District's social and economic council -CONFIS-) and appoints theGeneral Manager and members of the Board, the General Manager of EAAB now has, for the first time,full responsibility for managing the utility under policies formulated by its Board of Directors,representing not only the interests of the City Council as owner, but the general public as users as well.

33. EAAB's recent institutional restructuring will help restore the basic viability of a major publicutility in the capital, strengthen its ability to respond adequately to unmet needs for rehabilitation andmodest expansion of the water distribution and sewerage network, as well as, to the complex demands overthe medium-term for pollution control and treatment. Moreover, by improving efficiency (especially,through reducing unaccounted for water, and effectively anticipating and meeting longer-term liquidityconcems), it will also build up the institutional and financial capability to undertake the needed capacityexpansion investments in the longer-term. However, management turnover is still a major problem facingEAAB. The last four General Managers and their core teams have spent an average of 18 months or less intheir positions. The Public Services Law will not remedy this situation except insofar as Municipalauthorities reconstitute utility entities into shareholding corporations. The proposed study for institutionalaltematives for EAAB will examine ways in which the institutional structure and govemance of EAAB canbe stabilized for the longer-term in order to enable the utility to meet its major challenges in the years

3 for a definition of the Quick Ratio see footnote in para 54.

4 The self financing ratio in 1993 is calculated on the same basis as in prior years, ie. (Gross Internal Cash Generation-DebtService)/Investments, thereby not taking into account the financing support from thenational government.

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ahead, in particular, the need to undertake large-scale investments going well into the next decade and toraise long term capital. As the detailed provisions of the new Public Services Law are implemented,EAAB's working practices in a number of key operating and strategic areas will need to be modified, eitherthrough internal reorganization, or more likely through unbundling of many of the functions that are carriedout by itself. A start towards this unbundling and towards introduction of the private sector into theoperations is being made under the Santafe I project. (see para. 35. and below).

D. Performance Plan

34. The National Government, the Mayor and EAAB have entered into a Performance Plan (PP) (Plande Desempefio), that sets stringent objectives for EAAB over the next seven years. This plan, discussedwith the Bank, sets the obligations of EAAB and, by extension, of the Mayor to improve the overallperformance of EAAB. The main features of the PP are explicit performance indicators in key areas,provision for independent monitoring and follow-up at a high level, and sanctions in the case of non-compliance. Users' pressure for quality service and efficiency and expanded accountability will bepromoted through the mandatory disclosure of key data on EAAB performance (financial situation, laboragreements and costs, time to attend to customers' complaints, service coverage, UFW, etc.). As detailedin para. 78. a set of monitoring indicators for the performance of EAAB in key institutional and financialaspects and specific indicators related to the implementation of the Santaf6 I project has been set forth.These indicators are consistent with the targets set in the PP.

E. Private Sector Participation

35. An important dimension of the restructuring process of EAAB is to give a more significant role tothe private sector in the traditional operating areas of EAAB. As initially conceived, this process wouldinvolve letting out private concessions for selected aspects of EAAB's operations. EAAB has now begunstudies to determine the most suitable areas for potential concessions (in particular, the rehabilitation of theTibito treatment plant and the Usaquen tunnel were identified in the early stages of project preparation aspotentially attractive candidates), while at the same time the study of institutional adjustment alternativeswill be used to examine the issue of private sector participation in a broader context. As individualproposals are put forward, the implications on the financing plan for the project will be reviewed with theBank on a case by case basis and adjustments made in the allocation of the Bank loan proceeds in the eventspecific elements of the Santafe I project should be more attractive to private sector concessions. In themeantime, EAAB has already begun to examine the scope for sub-contracting with the private sector manyactivities now being carried out by its own workforce. Some of these activities have recently beencontracted to the private sector with considerable gains in efficiency and a decline in the number ofcomplaints. EAAB has presented a plan, acceptable to the Bank, to increase private sector participationthrough concessions and service contracts in many areas (see Annex 6).

36. In spite of the high degree of autonomy already achieved, the National Government, the CapitalDistrict, EAAB and the Bank have agreed that further consolidation of structural reforms and autonomyand efficiency gains in EAAB would best be achieved through transformation of the enterprise into a share-holding company with substantial divestment of the Capital District's ownership. The precise form of thiscorporate identity will need to be studied keeping in mind the possible privatization options being tested invarious Colombian and Latin American cities with respect to public utility companies and recognizing thatEAAB's major problems lie in the inefficiencies of its management structures and its erstwhile lack ofautonomy and insulation from political interference, rather than technical incompetence or insufficientcoverage. These issues would be addressed by a detailed and comprehensive study of EAAB's institutional

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- 11 -adjustment which is proposed under the Technical Assistance component of the project. Additionalinformation regarding EAAB's institutional adjustment is presented in Annex 6.

37. The objective of the study will be to propose a new institutional framework under which enhancedautonomy and efficiency levels would be attained, as well as to help implement the recommendedalternative after the relevant decisions are taken. The study will examine the longer-term urban growthprospects for the Bogota metropolitan area and determine the optimal investment strategies in respect ofwater and sanitation infrastructure within known developmental and technological constraints, andrecommend the likely long-term institutional structures that will best serve the needs of the population atacceptable cost. It will take into consideration the financing needs for future expansion of service andpropose financial and institutional schemes to make the financial sources viable. The study will recommendthe medium and long-term structural changes that will best prepare EAAB and the Bogota metropolitanarea to meet the challenges of the next century. This study will take advantage of all new possibilitiesprovided under the Law 142 and will consider all major institutional alternatives for EAAB, from notchanging the company's current status, to different formns and levels of private sector participationincluding widening the company's ownership through public stock issue. It will also consider separating theproduction from the distribution function. The study will outline an action plan for implementing therecommended structural adjustment of EAAB. Activities towards implementation of the plan would initiateif the recommendations of the study and the proposed action plan would be acceptable to the Colombianand Capital District authorities and to the Bank. During negotiations, agreements were reached on thefollowing: (i) a schedule for the study; (ii) the establishment of an independent Steering Committeecomprising prominent citizens of Bogota drawn from the public and private sectors and including technicaland institutional experts who can provide advice and direction for the conduct of the study, and for itsguidance through the political decision-making process; and (iii) the commitment of the Colombianauthorities to implement the study's recommendations, if found acceptable.

m. The Project

A. Background

38. The proposed project would be the fifth operation with EAAB financed by the Bank. The projectbuilds particularly on the last two operations where preparatory work was done in the formulation of thewater distribution network and sewerage master plans as well as on the identification of the causes ofunaccounted for water (UFW).

B. Project Objectives and Rationale

39. The key objective of the project is to support and consolidate the transition of EAAB from atechnically capable but operationally inefficient public service agency to a commercially-run public utilitycompany, sensitive to the demands of the market, and with a corporate culture based on professionalresponsibility and accountability. The project would build on the important steps recently taken by theGovernment through the new Public Services Law to enhance operational efficiency, provide broadermnanagerial autonomy and responsibility, reduce political interference, and increase public accountabilityof municipal utilities such as EAAB. The transition to a corporate culture would prepare the way for alonger-term structural transfornation of the company, including, inter alia, participation of private sector

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- 12 -capital in the future provision and operation of the Capital's water and sewerage services. A key incentivefor this transition has already been put in place by the national Government in 1993, with the signing of thePerformance Plan (see paras. 31 & 34.) . Compliance with the operational targets in the PerformancePlan is being monitored on a quarterly basis by independent external auditors commissioned by theNational Government. As a follow up to the above institutional transition, the project is also supportingEAAB in defining the longer-term framework of institutional changes and economic tariff structures thatwould be needed to adequately finance and implement major new investments in water supply, sewerageand especially wastewater treatment in the Capital District and its surrounding municipalities over the next20-30 years, when the current population of over 6.5 million is expected to nearly double in size. Inaddition to this key institutional objective, the project has a number of specific objectives which include,(a) expanding distribution services to the urban poor, in particular, targeting more effectively the lowestincome groups in the metropolitan area; (b) addressing major environmental concerns of the heavilypolluted Bogota River; (c) reducing the vulnerability of the Bogota water supply system; and, (d)supporting a revamped economic and its tariff framework which enables EAAB to reflect the full cost ofproviding its services. Progress towards meeting these objectives will be monitored within the frameworkof the Action Plan discussed in paragraph 88. The project objectives are thus fully consistent with thecountry assistance strategy for Colombia and the choice of the project fits well within the context of theRegional Infrastructure initiative.

40. In line with the above objectives, the project would specifically focus on the following actions:

* Inmprove water, sewerage and storm water drainage services in Bogota, with special emphasison sub-normal service zones inhabited by population of low income, through optimization of theoperation of the existing water supply system and expansion and rehabilitation of the sewerageand storm water drainage networks;

* Improve the reliability of the Bogota water supply system and reduce n'sks of water rationing;* Support EAAB in the institutional and financial restructuring and strengthening program,

thereby increasing efficiency in operations and achieving and consolidating financial viability;* Strengthen wetlands management and environmental protection and enhance EAAB sensitivity

to enviromental concerns;* Provide technical assistance and consulting services to support project implementation and

prepare future investment programs* Support EAAB in carrying out a comprehensive study to explore promising institutional

alternatives for the company aimed at enhancing its autonomy and efficiency;

C. Project Description

41. The proposed project, which would be carried out during a seven year period, between mid1995 and 2002, includes eight main components in which all major works correspond to theminimum cost solution. The following is a description of the items included in the project,including indication of their implementation phase (a more detailed description of the project ispresented in Annex 7).

A. Vulnerability Control comprising, in Phase 1, i) Rehabilitation of a 31 km section theTibito-Casablanca pipeline which conveys treated water from the Tibito plant to the city; ii)Rehabilitation of the Tibito water treatment plant, and, in Phase 2, Construction of the Usaquenbackup tunnel for conveying the treated water of the Wiesner plant to the city

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B. Primary Sanitary and Storm water Drainage and Pollution Control comprising, in Phase1, construction of: i) about 35 km of sewage interceptors, trunk sewers and storm water drainagesystems, as well as about 17 km of drainage canals in the Torca, Salitre, Jaboque, Fucha, Tintal andTunjuelo drainage basins; ii) 2 main sewage pumping stations and expansion of 2 smaller sewagepumping stations in the Tintal and Salitre drainage basins; iii) a storm water peak attenuation lagoonat Fontibon; and iv) rehabilitation of dikes on the left bank of the Bogota River, in front of BogotaCity at Fontibon and Tintal, with a total length of about 11 km and an average height of 1 m; and, inPhase 2, Construction of: i) the first section of the Bogota River Interceptor, the Torca-Salitrestretch of about 12.5 km; ii) about 27 km of sewage interceptors, trunk sewers and stomn waterdrainage systems, as well as about 12 km of drainage canals in the Torca, Salitre, Jaboque, Fucha,Tintal and Tunjuelo drainage basins; nii) 1 main sewage pumping station; and iv) a storm water peakattenuation lagoon at Tintal.

C. Primary Water Distribution System comprising, in Phase 1, i) installation of about 54 km ofprinary distribution mains; ii) construction of 4 storage tanks in the southwestem sector of the citywith a combined capacity of 10,800 in3 ; and iii) construction of 2 pumping stations in the southeasternand southwestem sectors of the city; and, in Phase 2, i) installation of about 56 km of primarydistribution mains; ii) construction of 3 main storage and compensation reservoirs with a combinedcapacity of 94,000 m3 , as well as rehabilitating and increasing the volume of 6 storage tanks in thenortheastem sector of the city with a combined capacity of 3400 m3 ; iii) expansion of 3 pumpingstations in the nortwestem sector of the city.

D. Secondary Water, Sewerage and Drainage Networks and Service Connectionscomprising, in Phase 1, construction of i) about 125 km of secondary and minor water distributionmains; ii) about 265 km of secondary sewage collectors; iii) about 225 km of storm water drains; and,iv) installation of about 70,000 water service connections and of about 100,000 sewerage serviceconnections, all in low-income neighborhoods; and, in Phase 2, Construction of i) about 225 km ofsecondary and minor water distribution mains; ii)about 270 km of secondary sewage collectors;iii) about 545 km of storm water drains; and, iv) installation of about 1 1O,000 water and100,000 sewage additional service connections all in low-income neighborhoods.

E. Rehabilitation Works comprising, in Phase 1, on the Sewerage System: replacement or repairof about 19 km of sewage collectors, construction of alleviation sewers and rehabilitation of sewerappurtenances, as well as identification and repair of erroneous connections between sewage and stormwater collectors; and on the Water Supply System: replacement or rehabilitation of about 150 km ofolder pipes in the distribution network; and in Phase 2, on the Sewerage System: replacement or repairof about 28 km of sewage collectors, construction of alleviation sewers and rehabilitation of sewerappurtenances as well as identification and repair of erroneous connections between sewage and stormwater collectors; and on the Water Supply System: replacement or rehabilitation of about 150 km ofolder pipes in the distribution network.

F. Institutional Strengthening of EAAB comprising, all in Phase 1, i) implementation of theUFW reduction program, including, among other activities, purchase and installation of bulk meterson all the water production sources and of about 780,000 domestic meters in low-incomeneighborhoods; ii) development of a water conservation program aimed at investigating options andformulating guidelines for water demand management, and initiating actions for reducing the waterdemand in Bogota; iii) development and implementation of a staff training program; iv) purchase of

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- 14 -laboratory and radio communication equipment; v) formulation of a strategy, satisfactory to the Bank,for development of management information systems and redesign of the financial information systern,and purchase of related computer hardware and software systems for data processing in a fashionconsistent with the strategy formulated; and vi) establishment and maintenance of an environmentalprotection committee of EAAB and development of the company's institutional capacity to performenvironmental analyses.

G. Technical Assistance and Consulting Services for Engineering, Design and Supervisionof Works comprising, in Phase 1, i) completion of all the detailed engineering designs of parts A,B, C, D, E and HI of the project within a time schedule corresponding to the implementation phases ofthe works; ii) supervision of all works included in parts A, B, C, D, E and HI of the project within atime schedule corresponding to the implementation phases of the works; iii) retaining of consultingservices to carry out studies of institutional alternatives for EAAB as well as studies needed to designthe chosen alternative and help in itsimplementation, and retaining of consulting and advisory servicesto carry out studies required for implementation of the Santafe I project, as well as additional studiesand designs required for implementation of future works; and in Phase 2, i) completion of all thedetailed engineering designs of parts A, B, C, D, E and Hl ofthe project within a time schedulecorresponding to the implementation phases of the works; ii) supervision of all works included in partsA, B, C, D, E and HI of the project within a time schedule corresponding to the implementationphases of the works; and iii) retaining of consulting and advisory services to carryout additionalstudies and designs required for implementation of future works.

H. Environmental Component comprising, all in Phase 1, i) implementation of the mitigationmeasures recommended as part of the environmental impact assessment of the project; ii)implementation of a program for resettement of about 311 persons to be displaced by the projectworks; and iii) execution of a program of activities aimed at wetland protection in the Bogota area.

D. Project Cost

42. The total project cost is estimated at US$ 717.9 million equivalent, including physical and pricecontingencies, and duties and taxes, estimated at US$ 66.9 million equivalent. The proposed two Bankloans totaling US$ 145.0 million will finance the first phase of the Santafe I investment program (1995-98)equivalent to 38.7% of project cost net of duties and taxes and excluding interest on the Bank loans. Asummary of project costs is presented in Table 2, and a detailed estimate is given in Annex 8.

43. Project costs for all construction and equipment purchase components are based on detailed designsthat cover about 45% of the works and on unit costs of similar project components in the project area. Baseprices are based on current prices of June 1993. Physical contingencies amounting to an average of 10% ofbase cost were added to all project components. Price contingencies were calculated for a project executionperiod of seven years, at a local inflation rate of 21% in 1993, 22% in 1994, 18% in 1995, 16% in 1996,14% in 1997, and 12% in the other years, and projected intemational inflation rates as shown in Annex10.

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Table 2. Estimates Project Costs (US$ million)

PHASE 1 PHASE 2 TOTAL SANTAFE 1 PROJECT

LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL % FOREIGN

A. Vulnerability Component 20.3 30.5 50.9 5.9 8.9 14.8 26.3 39.4 65.7 60.0

B. PrimarySewerage & Drainage 41.1 31.7 72.8 14.8 24.8 39.6 56.0 56.5 112.5 50.2

C. Primary water Distribution 7.0 15.8 22.9 11.3 33.5 44.8 18.3 49.3 67.6 72.9

D. Expansion of Secondary Networks 30.0 20.0 49.9 36.0 24.0 59.9 65.9 43.9 109.9 40.0

E. Rehabilitation of Secondary Networks 6.5 6.5 13.0 5.8 5.8 11.6 12.3 12.3 24.6 50.0

F. Institutional Strengthening 12.0 24.8 36.8 0.0 0.0 0.0 12.0 24.8 36.8 67.4

G. Technical Assistance 17.3 17.3 34.6 13.0 13.0 26.1 30.3 30.3 60.7 50.0

H. Environmental Component 3.1 4.7 7.9 0.0 0.0 0.0 3.1 4.7 7.9 60.0

BASE COST (June 1993 Prices) 137.4 151.3 288.7 86.9 110.0 196.9 224.3 261.3 485.6 53.8

Physical Contingencies 13.7 15.1 28.9 8.7 11.0 19.7 22.4 26.1 48.6 53.8

Price Contingencies 45.6 11.2 56.8 42.2 17.9 60.1 87.8 29.1 116.9 24.9

TOTAL PROJECT COST 196.8 177.6 374.4 137.8 138.9 276.6 334.5 316.5 651.1 48.6

Import Duties & VAT 39.8 0.0 39.8 27.1 0.0 27.1 66.9 0.0 66.9 0.0

TOTAL INVESTMENT COST 236.5 177.6 414.2 164.9 138.9 303.8 401.4 316.5 717.9 44.1

Note: Totals may not add up because of rounding

E. Economic Evaluation

1. Project Justification and Benefits

44. The economic justification for the project is based on the benefits it would generate in the form ofhigher water sales and cost savings ftom investments that promote efficiency in water supply and sewerage.These benefits will mainly stem from the rehabilitation of the water supply and sewerage network] and theimplementation of the water loss reduction program, that will result in an increase of the available watersupply. The project would also foster a number of non-quantifiable benefits. The lack of reliable data haveprecluded a quantitative estimation of these benefits. These benefits include health benefits, environmentalbenefits (including reduction of the contamination of the main water courses and the reduction ofenvironmental damage to fragile wetlands ecosystems), cost savings from postponed investment, increasedproperty values in flood prone areas, and benefits associated with the institutional strengthening of thecapacity of EAAB to plan and manage its resources.

45. The main assumptions underlying the analysis is the definition of the 'with' and 'without project'situation. The incremental revenues from the sale of future water and sewerage services have been used asa proxy for direct-use benefits. To ensure financial viability, the average tariff has to be graduallyincreased to US$0.48 per cubic meter in 1998. The investment costs have been discussed in more detail inparagraphs 42 and 43, and in Annex 8. It should be noted that the proposed investment program is theleast-cost option to expand the production capacity. The calculation of the fixed operation and maintenancecosts is based upon the assumption that an increase in effective production capacity will not require anyadditional staff and thus can be limited to 1.5 percent of the accumulated investment costs. The variable

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- 16 -operational and maintenance costs will increase due to the higher energy and chemical costs that arerequired in the Tibito plant.

46. To reflect true costs and benefits, financial prices have been transformed into economic prices. Themajor difference between financial and economic prices involves the impact of taxes and subsidies. Adiscount rate of 10 percent is used to calculate the net present value. Based upon these assumptions, the netpresent value of the project is US$ 209 million, the internal economic rate of return is 17 percent, and thebenefit-cost ratio is 1.49. The impact of changes in a number of key variables have been analyzed, and arepresented in the table below. This sensitivity analysis shows that the results of the cost-benefit analysis arerather solid.

Table 3: Results of the Sensitivity Analysis

Impact Net Present Value Internal Rate Benefit-(US$ million) of Return cost ratio

Base Case Scenario 209 17% 1.49

Cost overrun of 25% 113 13% 1.22Project delay of 2 years 183 16% 1.43No tariff increases 162 16% 1.38UFW remains at 40% 27 11% 1.06Collection efficiency remains at 25 11% 1.0680%Price elasticity of demand at -0.30 192 16% 1.46

47. Marginal cost pricing has been increasingly promulgated as a basis for tariff setting. The long-runaverage incremental cost of the project has been estimated at US$0.55 per cubic meter consumed. This ishigher than the current water and sewerage rate, which currently stands at US$0.44 per cubic meterconsumed. In order to promote an efficient allocation of resources, average water and sewerage rates needtherefore to be increased during the project implementation period. When the production capacity generatedunder this program is insufficient to satisfy future demand, EAAB would have to resort to very expansiveinvestment altematives, such as the Chingaza or the Sumapaz Alto Muna expansion. The long-run averageincremental cost of these expansion programs could result in a quadrupling of the average tariffs. The highcosts of such new investment projects could have major implications and should be considered in futuresector strategies.

F. Financial Analysis

1. Project Financing Plan

48. The financing plan of the first phase of the Santafe I Investment Program is presented in Table 4.The proposed Bank loans totaling US$ 145 million represents 38.7% of these first phase project cost, netof taxes, and would help finance the first phase of project implementation (1995-98). The Bank hasindicated to the Government that it would consider a request for further loan(s) to help finance theremaining period of the project. The private sector is expected to finance US$ 30 million of this firstphase project cost. An additional amount of US$ 119 million will be allocated by the Capital District fromthe recently mandated transfers from the National Government under Law 60. The timing of thesetransfers has been formally agreed between the National government, the Capital District and EAAB.

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- 17 -During negotiations confirmation of the amount and schedule of transfers from the Capital District wasobtained and referenced in the Loan Agreements and in the Sponsor Agreements with the Capital District.The balance of US$120.3 million (about 29 % of total project cost, including duties and taxes) will beprovided by EAAB's internal cash generation, which is expected to be sufficient. The two Bank loans andportions of EAAB's and the private sector's financing will cover the foreign exchange component of theproject.

Table 4. Financing Plan (In US$ Million):

Project Cost of Phase 1 % of % of

Source Local Foreign Toti VAT & Total (cil Project TotalTaxes Taxes) Cost Cost

World Bank 0.0 145.0 145.0 145.0 38.7 35.0

EAAB 77.9 2.6 80.5 39.8 120.3 21.5 29.0

Transfers from District 118.9 0.0 118.9 118.9 31.8 28.7

Private Sector 0.0 30.0 30.0 30.0 8.0 7.2

Total 198.8 177.6 374.4 39.8 414.2 100.0 100.0

49. Out of the proposed loans, a maximum amount of US$ 14.5 million (10% of the total loans) wouldbe available for retroactive financing of urgent works of water supply, sewage collection and flood control,and for completion of designs of work to be implemented under the project. Eligibility for retroactivefinancing would apply to all works, goods and consulting services that are procured under procurementprocedures acceptable to the Bank, before signature of the Loan Agreements, but not earlier than the laterof September 1, 1994 or 12 months before the corresponding loans' signing date.

50. EAAB has appointed consultants to prepare the bidding documents for a concession forrehabilitation and operation of the Tibito water treatment plant, with an estimated investment of US$ 25million in rehabilitation works. EAAB is also considering a concession for construction and operation ofhydroelectric power plant linked to the alternate Usaquen tunnel, which includes an estimated investment ofUS$ 15 million for construction of the tunnel, of which an estimated amount of US$ 10 million can berecovered through power generation. A final decision in regard to the Usaquen concession will be taken onthe basis of results of a pre-feasibility study which is currently being prepared. It is possible that shouldthese concessions materialize, private sector participation in the financing of the Santafe I project couldincrease beyond the amount currently indicated (U$ 30 million). Private sector financing is also possiblethrough supplier/buyer financing arrangements that might be offered for some of the equipment andmaterial supplies. In addition to the above possibilities which are under study, the private sector is alsoexpected to participate in project financing through a service contract for supply, installation andmaintenance of domestic water meters, with an estimated investment of US$ 15 million in supply of themeters.

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- 18 -

2. Projected Financial Results

51. The projection of EAAB's financial performance in the coming decade with the implementation ofthe Santafe I project and under the conditions imposed by the Action Plan targets is shown in Annex 10,together with the detailed assumptions relating thereto. Key financial data for the next five years issummarized in Table 5 below:

Table 5: Selected Financial Data (Years ending December 31)(in current Col$ million)

1995 1996 1997 1998 1999 2000Average Exchange Rate (Col$/USS) 888 1,002 1,114 1,220 1,312 1,390

Water Sold (Million m3) 357 365 372 377 394 414

Average Tariff/m3 (incl. Bulk Sales) 499 597 700 806 891 972Revenue from Water Sales 178,134 217,956 260,077 304,166 351,402 402,198Total Operating Revenues 188,662 230,199 274,071 319,880 368,733 421,121Working Expenses (incl. Pensions) 83,764 104,108 117,474 126,812 143,863 165,239of which Personnel (incl. Pensions) 56,642 72,720 83,022 88,913 101,743 116,375Net Operating Income bef. Interest (37,095) (7,390) (23,368) 36,500 58,256 77,997Net Income (after Monetary Corrections) (9,993) 27,535 12,001 83,580 109,434 130,433Internal Sources 114,137 134,945 132,212 221,193 263,871 302,745Equity/Contributions/Transfers 7,957 12,839 17,593 24,196 32,590 40,513

Borrowings 79,599 77,883 114,936 114,673 130,485 140,904of which Treasury Refinancing 29,990 30,804 31,994 0 0 0Total Sources 203,679 229,395 268,154 364,465 431,902 490,165Investments (incl. Santafe 1) 100,122 142,222 170,818 163,421 216,508 288,192Debt Service 59,163 63,470 72,720 94,388 120,209 123,075Changes in Working capital 29,816 28,450 578 1,821 (8,529) (8,689)Total Applications 198,339 252,059 264,427 278,255 352,658 434,911Net Inc.(Dec.) in Surplus Cash 5,339 (22,665) 3,728 86,210 79,245 55,254

Cumulative Cash Surplus 89,138 66,474 70,202 156,412 235,656 290,910Revalued Net Fixed assets in Use 1,262,275 1,503,005 1,777,972 2,050,768 2,370,378 2,765,804Current Assets 222,387 239,150 253,324 346,057 417,071 474,144of which Quick Assets 137,576 124,020 133,172 220,549 297,282 352,407less: Current Liabilities 98,359 113,247 138,842 168,885 158,388 184,042

Total Assets 1,442,571 1,687,045 1,956,217 2,293,459 2,698,108 3,129,601Equity & Reserves 840,522 912,347 979,975 1,133,236 1,326,885 1,555,212Net Long Term Debt 280,295 359,114 465,563 548,554 655,397 757,597Other Long Term Liabilities 321,752 415,581 510,678 611,667 715,825 816,790

Total Equity & Liabilities 1,442,569 1,687,043 1,956,216 2,293,458 2,698,107 3,129,600Quick Ratio 1.4 1.1 1.0 1.3 1.9 1.9Working Ratio (%) 44 45 43 40 39 39

Return on Average Net Fixed Assets(%) (4.1) (0.7) (1.8) 2.4 3.3 3.7

Labor Cost as % of Working Expenses 68 70 71 70 71 70Self Financing Ratio (%) 55 52 38 88 66 62

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- 19 -

52. The results of the financial analysis confirm the viability of implementing the proposed project ofUS$ 717.9 million, for which the envisaged funding mix will be adequate, with indebtedness remaining atextremely prudent limits, as shown in Annex 10. Salient features of EAAB's forecast financialperformance are as follows:5

* Operating revenues are expected to grow at a faster pace than in recent years, reflectinghigher population growth, implementation of the UFW reduction program, and theaggressive commercial action by EAAB to regularize the nearly 200,000 illegalconnections and update the customer database over the next seven years;

* Operating costs are expected to grow more modestly, as the impact of lower personnellevels, shift of newer personnel into non-unionized contracts and greater operatingefficiency are felt; labor costs as a percent of working expenses rises modestly reflectingthe legally mandated treatment of pensions (see para. 55. below), from 67% in 1993(para 29), to 70% in 1995, and hovers at that level throughout the projection period;however, with improved efficiencies in billing and collections, labor productivity isexpected to grow rapidly in the forecast period (see Annex 10, Table 5 for relevantstatistics and indicators of productivity and performance);

* In addition to the Santafe I Project investments, EAAB is expected to begin investments indeveloping new water sources starting in 1997, and to complete ongoing investmentprojects through 1998. These programs will impose additional cash burdens on EAAB.However, due to the infusion of funds from the National Government to cover EAAB'sestimated debt service payments on the existing foreign debt through 1997 ( para 31 ),EAAB's cash flow is expected to be sufficient to cover these needs during the criticalperiod from 1995-1998.

* The forecasts show that increases in water and sewerage tariffs in real terms of about 3%in 1996 and 2.5% each year in 1997 and 1998 will be required in order to enable EAABto meet its investment obligations and maintain sound liquidity. However, further tariffincreases in real terms and tariff structure adjustments will be needed beyond that periodif EAAB is to reduce existing distortions in the tariff structure and meet the minimalrequirements of full cost coverage as stipulated in Public Services Law. As detailed inAnnex 11, an analysis of EAAB's tariff structure reveals distortions that will need to becorrected in the near future in order to comply with the Public Services Law thatstipulates the levels of cross-subsidization permitted in tariffs and rates of public utilityproviders. The impact of tariff structure changes is expected to provide EAAB withhigher levels of operating revenues as more than 50% of EAAB customers are in thelowest tariff classes for whom the cross-subsidies will need to be eliminated by at leasthalf, and the remaining subsidies covered by explicit transfers from the municipality outof the oil royalty allocations. The potential increases in tariffs in real terms could beeffected by a combination of absolute increases across all classes of customers and byjudicious adjustments in the structure itself.

5 Net Income is shown prior to monetary corrections and inflation adjustments in order to ensure comparability with priorperiod data. However, the rate of return is calculated on the basis of adjusted figures and revalued (inflation adjusted) netfixed assets in use. See Annex 10 for details. See also Footnote in para. 29 regarding the self financing ratio.

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- 20 -

* Provided EAAB is able to effect the needed tariff adjustments in real terms, the mainfinancial ratios are expected to remain within satisfactory ranges throughout the forecastperiod.

3. Tariff Structure and Main Financial Covenants

53. Annex 11 describes EAAB's current structure of water and sewerage tariffs. After several years ofinadequate tariff levels, EAAB was able to obtain average tariff increases of 5% in real terms in each of1992 and 1993. In 1994, tariffs on bulk sales to neighboring municipalities were increased by an average of5% in real terms, while tariffs on retail sales in Bogota were adjusted at the inflation rate. Seriousstructural deficiencies still remain. EAAB will carry out a study of the tariff structure as part of theproposed project and the results will be incorporated into a revised tariff structure in 1996. Agreementwas reached during negotiations that EAAB will complete the tariff study not later than January 1, 1996,and will begin to implement the recommendations of the study not later than March 31, 1996, with the firstrevisions of the tariff structure occurring in 1996. However, given the extent of the distortions, and thepolitical sensitivity of making large adjustments affecting over 50% of the population with the lowestincomes in the metropolitan area, EAAB and the District government expect that tariff adjustments willrequire several years to be completed. EAAB has appointed consultants under terms of reference that werereviewed and approved by the Bank. The study commenced in January 1995.

54. Agreement was also reached at negotiations, that, EAAB will take, and the Capital District andNational Governments will cause EAAB to take, such actions as are needed to meet the annual WorkingRatio6 Target incorporated as financial covenant in both Loan Agreements (Section 5.02 of the LoanAgreements). In the event that the forecast of operating income for the following fiscal year showsinsufficiency in meeting the working ratio targets, EAAB will have to seek regulatory approval forappropriate tariff adjustments. The National and Capital District Governments are obligated to take allmeasures needed to enable EAAB to meet the corresponding targets. EAAB may however resort to short-term borrowings to meet temporary liquidity problems, provided that the ratio of liquid current assets toshort-term liabilities (i.e., the Quick ratio) 7does not fall below 1.0 in 1996 and 1997 and not below 1.1 inany year thereafter (incorporated as a covenant in Section 5.03 in both Loan Agreements).

4. Pension Fund

55. As part of the Performance Plan agreement with the National Government, EAAB established anEmployee Pension Fund in 1994. During 1995, EAAB will make other mandated changes in its treatmentof future pensioners to comply with the recently enacted Colombian law on Social Security ( Law 100 of1993). EAAB will continue to service pensions to its existing pool of pensioners (approximately 1250)directly out of its annual operating revenues and use the revenues accruing in its Employee Pension Fund to

6 Working Ratio defined as Ratio of working expenses, prior to depreciation and interest charges, and including annualpayments to existing pensioners, payments into the EAAB Pension Fund, and annual transfers to external pension funds underLaw 100 to operating revenues prior to subsidy transfers and extra-ordinary income (including income from excess liquiditybalances).

7 Quick Ratio defined as the ratio of liquid assets (cash and bank balances and short-term investments readily convertible tocash in three months and not more than 30% of accounts receivable) to current liabilities due and payable within one year,including loan amortizations due and payable. The value of 30%/o of accounts receivable is appropriate because of the currentbilling cycles that EAAB operates. Billings are sent out every two months and at anytime, the uncollected amounts representroughly 30% of the total accounts receivable outstanding from all customer accounts. In this calculation of the quick ratio, allreceivables due over 90 days are excluded.

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- 21 -partially offset use of its cash flow for this purpose. EAAB will need to continue its present practice ofusing its annual cash flow to cover the pension payment obligations. At the same time, if there are excesscash reserves due to improved bill collection, favorable investment returns on excess cash balances andother extraordinary events, EAAB will continue to increase the corpus of the Employee Pension Fund inorder to provide an additional source of supplementary cash flow to cover its pension payment obligationsin particular years. EAAB will begin to contribute its share of social security and medical fundcontributions to the State Social Security scheme (or to alternative private pension funds that areauthorized to receive such contributions on the basis of individual employee elections under provisions ofthe Social Security Law). EAAB will also become liable to transfer the entire actuarial liability balancesincluding accrued interest charges to the State Social Security Scheme or to authorized alternatives whenemployees retire after December 31, 1995. As these liabilities are currently unfunded (and only partiallyprovisioned), EAAB will need to use its cash flow to effect these transfers. The forecast financialstatements reflect the provisions as outlined above, and take into account the increased cash outflows thatwill be required. EAAB's pension liability will be fully provisioned within seven years as required by newColombian accounting rules. The cash flow arising from the annual provisioning will more than amplycover EAAB's cash requirements to meet the present and future pension payment obligations. As EAAB'spension liabilities remain largely unfunded, it is essential that water and sewerage rates cover the annualcash flow requirements in this regard. The definition of the working ratio therefore includes thisrequirement to ensure that tariff increases provide the adequate cash flow to EAAB to meet these essentialneeds. The balance in the Pension Reserves is net of annual amortizations of accrued pension liabilities dueto pensioners leaving EAAB's pension plan, additions and reductions in numbers of pensioners andestimated actuarial liabilities outstanding at each year end. The working ratio covenant (see para 54. ) willcover this requirement. Agreement on the definition of the working ratio, incorporating the above cashneeds to meet EAAB's pension obligations was obtained during negotiations.

5. Asset Revaluation and Financial Rate of Return

56. Under the Bogota IV project, the Bank required EAAB to carry out annual fixed asset reevaluationsand incorporate the results in the balance sheet. However, as Colombian accounting regulations did notrecognize such reevaluations in the case of public entities, EAAB continued to show the revaluationamounts separately. Annual audits confirmed the practice but did not express an opinion. Colombianaccounting regulations were changed in 1992 to require all revenue-earning entities to adjust their assetvalues by an inflation index and to adopt corrections in monetary items on the balance sheet as well. The1993 audit has now effected prior-period adjustments to rectify errors in EAAB practice. EAAB willcontinue to show the earlier asset reevaluations (ie. prior to 1992), as a separate unchanging line item.Future year asset values will continue to be adjusted for inflation in accordance with the new regulations.A rate of return covenant is not proposed at this time. Given the large investment programs that need to befunded by EAAB cash generation, and the stringent Performance Plan targets on liquidity, collectionefficiency and UFW reduction, the working ratio and quick ratio covenants as stipulated in para. 54.above are more meaningful. The financial projections show that under the assumptions and forecasts ofimprovement in EAAB performance, the rate of return on revalued (inflation-adjusted) net fixed assets inuse rises from a negative 0.2% in 1994 to over 6 % in 2002. This is satisfactory, and reflects theimprovements in EAAB tariff structure and the impact of the project on efficiency and reliability of thewater system and of EAAB itself.

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- 22 -6. Financial Risks and Sensitivity Analysis

57. In order to minimize the financial risk and to ensure that EAAB's financial recovery continues on thepath set out in the agreement with the Government to finance the external debt service obligations over1993-1997, it is essential that the Performance Plan targets are met each year by EAAB. In addition to themonitoring of the physical performance targets set forth for the project (see para. 89), the Bank would alsomonitor the financial targets stipulated in the Action Plan and discussed in the preceding paragraphs.These should ensure that EAAB's financial condition will improve steadily over the project implementationperiod. Under the strict regimen of the proposed financial covenants and efficiency improvement targets,the level of financial risk inherent in the project is acceptable. Finally, the phasing of the Bank's financingof the Santafe I project provides a concrete instrument to monitor and limit the risk of non-compliance.

58. Nevertheless, some concerns remain, in particular, that a serious breakdown in the vulnerablesections of the system prior to the completion of the proposed rehabilitation investmnents, could lead tosubstantial loss of revenues and extraordinary expenses for urgent repairs and for use of costly alternativesin order to ensure water supply for the city. In order to mitigate against this risk, it was agreed duringnegotiations, that in the unlikely event of their occurrence, the Capital District of Santafe de Bogota wouldtake such measures as are needed to ensure that the company continues to meet its obligations under theLoan Agreement, particularly its financial covenants to have access to funds for carrying out emergencyrepairs and other extraordinary measures as may be necessary under the project. In view of the vulnerableelements of the water system and the potential for a catastrophic occurrence, however slim the probability,the above covenant was incorporated in the Guarantee and Sponsor Agreements as measure to mitigateagainst the worst possible outcome.

59. A number of sensitivity tests were performed to analyze the impact of less than favorable events onEAAB's financial soundness. These are described in Annex 10 and shown as Table 6 in that Annex. Theresults show that even under a worst case scenario of all such events occurring at the same time, EAAB'spresent financial position is sufficiently robust to ensure satisfactory completion of the Santafe I project.However, under a number of scenarios of non-compliance with the Action Plan targets, EAAB's ability tomeet the stringent financial covenants becomes limited. As a result, it is also likely that the Bank wouldnot go ahead with a second phase financing as proposed. This possibility is also reflected in the relevantsensitivity scenarios as discussed in Annex 11. Should EAAB find itself in any of the scenarios ofcontinued non-compliance and consequent erosion of its cashflows, both the District and the NationalGovernments can be expected to take swift corrective action under terms of the PP agreed betweeenthemselves and EAAB, and through the monitoring structure put in place by the Public Services Law.

7. Other Financial Matters

60. The level of accounts receivable at the end of December 31, 1993, was over 180 days. The ActionPlan requires that this be reduced to an acceptable 75-90 days by 1998. This corresponds to a ratio ofcollection/billing of 92%. In the financial analysis, a slower rate of achievement is forecast in order toensure that EAAB's financial viability remains robust under less than optimal operating performance. TheAction Plan includes a specific target for the reduction of the billing/collection ratio.

61. EAAB's accounting systems are being converted to computerized operations. However, EAAB hasexperienced substantial delays in the process of the conversion due to software problems that are now beingresolved. A cost accounting system is also being implemented. However, the customer data base is not upto date and results in substantial billing deficiencies. These are being addressed in the PP that is being

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- 23 -implemented now. During negotiations, agreement was reached that EAAB will submit semi-annualreports on March 31 and September 30 of each year, detailing achievements against targets and indicatorsset forth in the attachment to the Supplement Letter (see Section 3.01(b) of the Loan Agreement). In theframework of the semi-annual reports, EAAB will report on progress in moving to computerized financialaccounting systems and management accounting and financial information systems and to employconsultants on terms of reference satisfactory to the Bank in the implementation of modem financial andmanagement accounting systems and in setting up computerized billing systems.

8. Accounts and Audit

62. EAAB's accounting practices are satisfactory and follow generally acceptable accounting principlesapplicable to a water and sewerage utility. The financial statements have been regularly audited byindependent extemal auditors. The audits have been satisfactory and generally without qualificationsrecently, after a major effort in 1992-93 to remedy deficiencies, particularly with respect to correction oferrors in accounting treatment of fixed asset reevaluations. Audits cover Special Accounts establishedunder earlier projects. This practice would continue under the proposed project. During negotiations,agreement was obtained on the provision by EAAB of independent audits, carried out in accordance withgenerally accepted auditing standards within 120 days of the close of each financial year ending December31, 1998 and thereafter, and not later than 180 days for the precedent financial years 8and on the inclusionof an audit of the Special Account.

G. Environmental Impact

63. The project will generate both positive and negative impacts but the major environmental assessmentstudy of the project indicated the net benefit to be overwhelmingly positive. The assessment built onstudies of the previous two years, supported by the Bank (for the canceled BogotA V Project), and benefitedfrom extensive consultation between the consultants who carried out the assessment, EAAB, the WorldBank, the public and other interested organizations. The following text presents the positive and negativeimpacts.

64. The Bogota River Interceptor. With the construction of the first section of the Bogota Riverinterceptor, which forms part of the project, the wastewater of the northem part of the city will bedischarged to the BogotA River near the outfall of the Salitre tributary, thus greatly improving the quality ofthe BogotA river in the 35 km long section between the Guaymaral Canal and the confluence with theSalitre river. The main benefit of the pollution abatement in this river section is the improvement in thequality of water used for irrigation of crops in the La Ramada agricultural district. Contaminatedvegetables from this area are currently considered to be a major cause of water-borne diseases in Bogota.Water quality of the BogotA River downstream of the Salitre confluence will not change as a result of theproject works, since the sewage loads discharged to the river downstream will remain essentially the same.

65. Bogota River Tributaries and Canals. The water quality in sections of the tributaries of theBogotA River within the city limits (the Rivers Salitre, Fucha and Tunjuelo as well as other smallerstreams) will significantly improve as a result of construction of the sewage interceptors of the Santafe Iprogram and better separation of sewage and stormwater. This will result in decrease of public health risks

8 EAAB proposed, and the Bank accepted, that due to the difficulties inherent in the changes of accounting systems andincorporation of new computerized systems, an additonal 60 days be provided to ensure compliance with the Bank's auditingrequirements at least through the first three years of project implementation.

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- 24 -for the population residing along these water-courses. Many of the city's storm water drainage canals willalso benefit in the same manner.

66. Reduced Flooding. Construction of the canals and pipes of the drainage component of the projectwill also reduce the risk of flooding in some low-lying parts of the city (Torca, Salitre, Fucha and Tintal)which, currently are periodically exposed to flooding by contaminated river water. The drainagerehabilitation and construction under the project will, therefore, improve quality of life both by mitigatingfloods, as well as by reducing danger to public health arising from direct contact of the population withcontaminated flood water.

67. Protection of Wetlands. The quality of water in the wetlands located within the limits of the CapitalDistrict will significantly improve as a result of the project works, since the Santafe I program includesdiversion of all raw wastewater that currently flow into these wetlands. This will be most notably the casewith the Los Cementerios, Juan Amarillo, Jaboque, El Burro and La Vaca wetlands. The improvement ofthe wetlands' water quality will result in a better environment for the native fauna and flora in thesewetlands and will reduce public health risks originating from the pathogenic contamination associated withthe current discharge of raw wastewater. In addition, construction plans will require tree planting andrevegetation of many existing waterways and wetlands with resulting aesthetic and ecological benefits.Furthermore, an adequate annual amount of funds will be allocated for financing a wetlands protectionprogram over the seven years of project implementation. In order to ensure the best use of these funds, astudy will be financed by the project to develop wetland protection and management plans for each of thewetlands within the Capital District limits. Additional information regarding wetlands protection ispresented in Annex 4.

68. The environmental assessment study indicated major negative impact in four areas: disposal ofdredgates and other excavation materials, local and temporary impacts associated with constructionactivities, negative impacts on wetland viability and involuntary resettlement. Mitigation measures for allsignificant negative impacts will be implemented under the project, in accordance with an EnvironmentalManagement Plan proposed in the environmental assessment study. Some residual negative impacts willhowever remain (for example, the inconvenience resulting from passage of about half a million dump truckloads). A newly created Environmental Committee within EAAB will be responsible for implementation ofthe Environmental Management Plan.

69. Construction of the project will entail the displacement of 65 low-income fanmilies (311 persons).EAAB anticipates no major problem managing the negotiated compensation for displacement of thesefamilies, an event of common occurrence in the construction of similar works and one with which EAAB isfamiliar. EAAB has presented a comprehensive plan, acceptable to the Bank and under Colombian law,for the resettlement of these families. The Castilla and part of the Cundinamarca sewage interceptors anddrainage canals, located in the Tintal area, have been excluded from the project, pending further analysis,since they require complementary works to be carried out by private developers and for which anacceptable resettlement program has not yet been developed. EAAB has indicated its intention to ensurethat a detailed resettlement program, acceptable to the Bank, will be implemented also in the areas to bedeveloped by the private sector. Once such a program is presented to the Bank and found satisfactory, theconstruction of the Castilla and Cundinanarca interceptors and drainage canals may be considered underthe project, utilizing unallocated funds to finance them, without increasing the overall project cost.

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- 25 -H. Socioeconomic Impact

70. During the construction period, the project will provide a significant amount of local employment.The project will result in an annual increase of about 26,000 water house connections and about 28,000sewerage connections in the Capital District, most of them in poor neighborhoods. The improvements inthe water supply service included in the project, such as creating uniform water pressure, increasing thestorage capacity, and strengthening parts of the distribution system, will diminish de facto discrimination inservice quality and benefit mostly the urban poor, whose water supply service level is generally lower. Theimprovement and extension of water supply and sewerage services will increase land values and willcontribute to a more orderly process of urban development.

1. Project Risks and Safeguards

71. The main risks of the project are associated with the institutional reforms that are beingimplemented. As discussed in the earlier chapters, these risks principally encompass back-sliding on thereforms pertaining to autonomy of EAAB and its managerial and financial independence from politicalinterference. The principal safeguard against these risks has been in the sensitization of the public over thelast two years to the major issues, the demand for more effective, efficient and responsive services, and theprovisions agreed and reflected in the Development Plan for disclosure of key information to all clientsevery two months, along with user representation on the restructured Board of EAAB. These risks arealso mitigated by ensuring that more of the operations will be let out to private sector participation in theform of long-term concessions and service contracts that will provide a measure of reliability and insulationfrom political interference. Adequate financial safeguards are being proposed under the project covenantsthat would reduce the financial risks and ensure commitment by the government at the national and capitaldistrict levels to sound financial structure for EAAB and for delivery of the basic water and sewerageservices to the city. The proposed mid-term review of project performance would also allow thegovernment and the Bank to adjust the targets set under the Action Plan. The monitoring indicators wouldprovide sufficient feedback on performance in a timely manner to effect needed mid-course corrections ifthat becomes necessary. Nonetheless, it must be recognized that the provision of water and sanitarysewerage for a city the size of Bogota is part of a political process that cannot be ignored by the institutionscarrying out the task. The safeguards that are being implemented to ensure that EAAB remains relativelyfree of day-to-day interference and that EAAB is able to maintain a level of integrity in its basic operationsand commercial processes are the best insurance against risk of failure and a return to institutionaldisorder that preceded the reform program now underway.

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IV. PROJECT IMPLEMENTATION ARRANGEMENTS

A. Status of Project Preparation

72. The technical preparation of the project has been underway since early 1993 and project preparationis well advanced. Detailed engineering designs and technical specifications are available for about 45 % ofthe works. These include 80% of the primary sewerage and drainage systems, 50% of the primary waterdistribution networks, 100% of the rehabilitation works and 20% of the secondary water and seweragenetworks. Designs for the rest of the works are under preparation and will be completed according to theproject implementation schedule.

B. Organizational Aspects

73. EAAB will be the Borrower and sole beneficiary of the Bank loans. EAAB will coordinate withDAMA in the implementation of the environmental component relating to the protection of wetlands.EAAB has recently undergone a major organizational restructuring (Annex 5) to be able to carry outproject implementation in an appropriate strategic context. Since the project objectives and activities willrepresent practically all of EAAB's functional areas of activity, effective project implementation andoversight will be primarily dependent on effective management practices at all levels. The GeneralManager of EAAB will have a crucial role in this regard. Moreover, in order to enhance institutional andstrategic sustainability, EAAB is now taking steps to enter into contractual arrangements by November1995, with a modem and efficient water utility in an industrialized country, for support with advice,transfer of executive know-how and trouble shooting over the long-term.

74. The essence of the renewed emphasis on effective implementation will be in the close coordinationbetween all functional areas (Vice Presidencies and departments) of EAAB, with ownership by all of themfor a project and a corporate vision in whose formulation they have actively participated. A seniormanager of EAAB's staff, highly experienced in management of large scale projects, will be nominated asthe Santafe I project Coordinator, reporting directly to the General Manager. He will be assisted by aproject coordination unit staffed by extemal consultants who have already been hired. This unit iscomposed of a group of experts who will provide independent monitoring of each activity of the projectcomponents and oversight of project implementation. The project coordination unit will also develop,maintain and support management information systems which will facilitate compliance of the Santafe Iprogram objectives. Responsibilities for overall project coordination and for implementation of the distinctcomponents of the project according to the new organizational structure of EAAB are described in andpresented diagrammatically in Annex 12. The implementation schedule of each of the main projectcomponents is presented in Annex 13.

75. The program of UFW reduction will be managed by a special coordinator directly to the GeneralManager. This position has been established not only to implement the proposed actions to reduce UFW,but as a permanent feature of EAAB's organization to ensure that UFW reduction goals are reached andremain under control. The coordinator will coordinate the activities of the Operations, Commercial,Technical and Planning Vice Presidencies that will be involved in implementing the UFW reductionprogram, and will have responsibilities for the day to day control and coordination of all actions required toaccomplish UFW reduction goals and to develop monitoring indicators to assess progress made by thedifferent divisions in charge of distinct components of this program. The goal set in the Development Planis to reduce UFW from the current level of about 40% to below 20% by the year 2000. During negotiationsagreement was obtained that EAAB will maintain a specialized unit to implement all needed actions to

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reduce UFW to the target levels and will staff the unit with suitably qualified and experienced personnel atall times.

76. To implement the environmental components of the project, EAAB will establish an EnvironmentalCommittee by January 1, 1996. This Committee will have the important task of overseeing theimplementation of the Environmental component of the Santafe I project. In the longer term, this unit isexpected to considerably improve the capacity of EAAB to analyze and incorporate environmental concernsinto all aspects of its work. During negotiations, EAAB submitted plans for the creation of this Committee,TORs and contracts for the external environmental consultant required for its effective performance as wellas a detailed work plan. The detailed implementation of environmental strengthening through thismechanism could be modified or improved in the future, through mutual agreement between the EAAB andthe Bank, if the institutional goals could be reached more efficiently by any other mechanism. Additionalinformation regarding the environmental institutional strengthening of EAAB is presented in Annex 3.

77. The institutional adjustment study, which would determine the institutional adjustment process ofEAAB, and its following implementation actions will be managed by a steering committee integrated by theCapital District, EAAB's General Manager and some high level officials. A technical group will supportstudy supervision and will be strengthened to help carry out all implementation issues. The initial goal is tobegin the study by February 1996, and have a decision on the approved alternative before June 1996.Detailed designs and implementation would then proceed in the subsequent two years. In the framework ofthe project EAAB will formulate s strategy for development of a management information system andredesign the financial information system. The related computer hardware and software systems for dataprocessing would be purchase at the opportune time in a fashion consistent with the formulated strategy.

78. A set of operational, monitoring, impact, financial and project execution targets and indicators hasbeen established to monitor performance of the project and performance of the Borrower (Annex 14).During negotiations, agreement was obtained that EAAB will take all actions necessary to meet suchperformance indicators, all to be calculated in a manner satisfactory to the Bank. EAAB, with the help ofan independent consulting firm, which has already been hired to monitor the PP, will report on EAABcompliance with these indicators by September 30 of every year as well as prepare projections for thefollowing three years. These projections will be submitted to the Bank for review. The Government has setup a project oversight committee with representatives of the Ministries of Finance and Development, DNP,FINDETER and EAAB, which will evaluate the reports on progress and compliance with the physical andinstitutional objectives of the Santafe I project. These reports will be prepared by the independent firmhired to monitor the PP. In order to ensure that EAAB continues to meet its institutional, financial andoperating performance targets, Bank financing of the second phase of implementation will be subject to asatisfactory review to be carried out after September 30, 1997, when EAAB will submit a comprehesivemid-term report. The timing of reporting by EAAB on project implementation progress and on compliancewith the Action Plan has been set out in a Supplemental Letter to the Loan Agreements. Quarterly reportsof project progress and semi-annual reports of compliance with the Action Plan will be submitted byEAAB. The annual report of compliance prepared by the independent firm mentioned above willsupplement EAAB reports.

79. EAAB needs to acquire some 350 ha of land to accommodate the construction of the main canals andinterceptors, water mains, water storage tanks, peak-flow attenuation lagoons and pumping stations. Mostof this land has already been legalized, i.e., landowners are not allowed to build in these areas and EAABhas up to six years to reach a compensated settlement with the owners. A small part of the land has already

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- 28 -been purchased by EAAB. In addition, EAAB will present to the Bank, before inviting bids forconstruction of any of the applicable interceptors and canals, satisfactory evidence that:

* a satisfactory resettlement of the current occupants of the land has been agreed with them;* environmental mitigatory measures, recommended in the detailed enginenering studies have

been incorporated in the construction plans.

80. All this evidence would be submitted to the Bank as a condition of inviting bids for construction foreach of these works.

C. Procurement

81. Procurement of goods and services under the proposed project will be in accordance with the BankGuidelines for Procurement of Goods and Works (January 1995) and Bank Guidelines for the Use ofConsultants (August 1981). EAAB has agreed that the Standard Bidding Documents (SBD) issued by theBank will be used for procurement of goods and works for International Competitive Bidding (ICB) and thesample form of contract for consultants services will be used for consultants' contracts. Standard biddingdocuments, satisfactory to the Bank, will be prepared by EAAB and used in procurement of goods andworks under National Competitive Bidding (NCB) procedures. EAAB has agreed that for large consultingcontracts, estimated to cost in excess of US$ 500,000 equivalent, as well as for all consultant contracts forinstitutional and financial/economic studies, the selection of consultants will be made on the basis oftechnical quality only and the price negotiated with the highest scoring firm. A formula combining qualityand price, the latter with no more than 30% weight, may be used for all other consulting contracts.Provisions of paragraphs 2.5.4 and 2.5.5 of the Guidelines and Appendix 2 thereto should apply to goodsmanufactured in Colombia

82. A breakdown of civil works, goods and services for the project to be procured by ICB, NCB, andother methods is presented in Table 6.

Table 6. Project Cost By Procurement Method(Bank Financing shown for Phase 1 only)

(in US$ million)

Other Non-Bank Total CostICB NCB Financed

Civil Works 192.0 90.0 282.0(37.4) (22.3) (59.7)

Equipment 91.8 90.0 15.0 40.0 236.8(31.5) (22.3) (4.3) (58.1)

Consulting Services and 78.6 78.6Training (27.2) (27.2)

Land Acquisition 33.4 33.4(0.0)

TOTAL 283.8 180.0 103.7 73.4 651.0(68.9) (44.6) (31.5) (145.0)

Note: Figures in brackets are the amounts to be financed by the Bank.

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- 29 -83. Contracts for civil works estimated to cost more than US$ 4.0 million, and goods purchases of morethan US$ 250,000 would be awarded through ICB. Contracts for civil works estimated to cost US$ 4.0million or less, and goods purchases estimated to cost between more than US$ 50,000 and more than US$250,000 would be awarded on the basis of NCB procedures, subject to an aggregate amount of US$ 90million for works and goods (for the two loans). Prequalification of bidders would be required for all civilworks contracts estimated to cost US$ 10.0 million equivalent or more. Contracts for US$ 50,000 or lessfor goods would be awarded on the basis of intemational or national shopping procedures as detemiined bythe Bank in consultation with the Borrower, subject to an aggregate limit of US$ 15 million (for the twoloans. The threshold established for ICB would ensure that contracts procured under InternationalCompetitive Bidding would account for about 43% of the estimated project cost. The limits of contractvalues by type of procurement are shown in Annex 15.

84. The Bank's prior review of procurement documentation will cover all major procurement steps(bidding documents, evaluation report, award recommendation and contract) and would apply to:

* all contracts procured under ICB;

* the first two contracts procured under NCB each year; and

* all consulting services contracts provided by firms and estimated to cost US$ 100,000equivalent or more, and all consulting services contracts provided by individual consultantsand estimated to cost US$ 50,000 or more. 9

85. It has been agreed with EAAB that, wherever feasible, works and goods will be combined into largerbidding packages to simplify Bank review procedures and accelerate execution. The tentative procurementschedule for all project works has been reviewed during appraisal, and discussed in detail for the first yearof the Project's implementation. A list of the bidding packages of the main works, agreed upon duringappraisal, is presented in Annex 16. The total amount of all contracts subject to prior review is estimatedto be about US$ 360 million, or about 62% of the amount of contracts under the proposed Bank financing.In light of the Bank's extensive prior experience with EAAB's procurement capacity, this is acceptable.

D. Disbursement

86. The proceeds of the proposed loans are expected to be disbursed in accordance with the allocation ofcategories shown in Annex 17, over a period of 7 years, which is the average for the country profile forColombia and the water sector profile for Latin America. The disbursement period was determined aftertaking into account the status of project designs, EAAB's execution capacity and cash generation capacity.The proposed loans will be disbursed against:

* Expenditures for civil works: 40 % of eligible local and foreign costs;

* Expenditures for equipment and materials: 40% of eligible local and foreign costs; and,

9 It is estimated that the aggregate amount of contracts subject to prior review will total US$ 55 million for services to beprovided by firms and US$ 3 million for services to be provided by individuals. Of the remaining estimated US$ 20.6 millionof consultant services and training contracts, US$ 18 milion are expected to be awarded to firms, and the remainder toindividuals, and would be below the above prior review limits. Thus, in the aggregate, 74% of consultant contracts would besubject to prior review. Terms of reference for all contracts below the prior review limit would be approved by the Bank priorto the selection of consultants by EAAB.

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Expenditures for consulting services, technical assistance, training and supervision ofworks: 52% of eligible local and foreign costs

87. For civil works contracts valued at less than US$ 4,000,000 equivalent, goods valued at less thanUS$ 250,000 equivalent, consultant services contracts valued at less US$ 100,000 equivalent for firms andless than US$ 50,000 for individuals, disbursements would be made against statement of expenditures(SOEs). Non-contract expenditures such as training would also be made against SOEs. Documentation forthese expenditures would not be submitted to the Bank, but would be retained by EAAB for periodicinspection by the Bank staff and for audit. All other disbursements would be made against fulldocumentation. To expedite disbursements, two Special Accounts (one for each loan) would be opened in acommercial bank at EAAB's discretion, with initial deposits of US$ 2.0 and US$ 3.0 million, untildisbursements from the loans account have reached the equivalent of US$ 20.0 and US$ 30.0 million, atwhich point, the deposit in the Special Accounts would be raised to the equivalent of US$ 4.0 and US$ 6.0million to cover four months of expected average disbursements thereafter. The Closing Date will be June30, 2003 , i.e., six months after the estimated completion of the project (December 31, 2002). The forecastloans disbursement schedule (on a consolidated basis for the two loans) is shown in Annex 17.

E. Monitoring and Impact Indicators

88. The Project's main objectives and achievements will be followed up by a set of monitoring andimpact indicators. Monitoring indicators include: a) milestones for action plans agreed for: installation ofcommercial, financial and management information systems, tariff restructuring and institutionalimprovements (including strategy development and implementation of the adjustment process); b) annualphysical performance targets proposed for Santafe I, including lengths of water and sewerage pipe installedand rehabilitated, number of water meters connected, and UFW reduction activities performed; and c)operational, financial and commercial indicators. During negotiations agreement was obtained that EAABwill take all measures needed to ensure its compliance with the monitoring indicators which have beenincorporated as an Action Plan in a Supplemental Letter to the Loan Agreements.

89. The proposed Impact Indicators will help evaluate the project's impact regarding five key objectives:a) Poverty alleviation, through water and sewerage connections in poor neighborhoods; b) Drainage andflood control, through tracking additional areas with access to drainage; c) Environmental protection,through area of wetlands preserved; d) vulnerability reduction through the completion of key identifiedworks and; e) efficiency and effectiveness, related to UFW reduction, control of personnel costs and ofpipe-bursts which interrupt service. Through this exercise, actual results will be analyzed in terms of thereal impact achieved, in comparison with the status (baseline) in these areas estimated at appraisal.

90. The details regarding the agreed monitoring and impact indicators are presented in Annex 14. Datafor both types of these indicators will be presented in the annual reports. Monitoring indicators will becompared with the estimates at appraisal, as recorded in the minutes of the negotiations. Impact indicatorswill be assessed in terms of progress in reaching the agreed objectives. Both will be discussed in detailduring supervision and all substantial differences, if found, will be analyzed, and followed-up byformulated corrective action. EAAB is upgrading its information systems to allow adequate recording,reporting, and implementation of corrective actions resulting from the analysis of recorded data.

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- 31 -F. Supervision

91. For the implementation of the project, EAAB has designed an organizational structure, fullyintegrated within its reformed structure, based on a project Coordinator, assisted by an external projectcoordination unit, which would coordinate and monitor all project activities carried out by the variousdepartments and Vice Presidencies of EAAB. This project focuses on strengthening EAAB'simplementation capacity, in order to reach the planned level of investments and to enter into a new, moreefficient pattern, through adequate attention to strategic issues of better customer service, povertyalleviation, and environmental protection.

92. An analysis of EAAB's capacity, in terms of procedures, organization and resources, to achieve itscorporate as well as the project's objectives on a timely basis has been carried out. This has included anexamination of procedures and time-frame for contract award and execution and the contracting plan underthe project. The close follow-up of monitoring and impact indicators, financial and project reports will takeplace in the framework of monitoring of EAAB's corporate strategy and achievements under theperformance plan.

93. The Bank's supervision will include a combination of: a) supervision by HQ staff including supportfrom specialized consultants as required (for institutional adjustment and private sector incorporation aswell as for addressing environmental issues); and b) continuous follow-up by a long-term, higher-levelconsultant based in the Colombia Resident Mission. This supervision will be based on the Borrower'sdemonstrated ownership and internal monitoring, with a restructured and more effective organization.Supervision resources are estimated at an annual average of 16 staff-weeks, including HQ staff andconsultants' contribution. This estimate includes 4 staff-weeks for a Colombian consultant duringmissions. The Colombia resident mission will provide about 8 staff-weeks annually for an overall follow-upof Santafe I and EAAB's performance with general support and advice on implementation issues to EAAB,review of the institutional performance of EAAB, and inputs and support to the task manager and othersupervision specialists. The time and level of delegated responsibility given to the Resident Mission willgradually increase during project implementation.

94. The first three years of execution of the project will be intensively supervised since theimplementation schedule shows that about 40% of investments will be carried out during these years. Thecalendar years 1996, 1997 includes many important activities in all the components of Santafe I andemphasis will be placed on supervision during these years. During the mid-term review of the project, anassessment of the supervision plan and strategy will be carried out, and corrective actions, as needed, willbe designed and introduced for the rest of the implementation period.

V. AGREEMENTS REACHED AND RECOMMENDATION

95. During negotiations, the following agreements were obtained:

(a) From the Capital District of Bogota (under both Sponsor Agreements):

(i) Confirmation of the amounts and schedule of mandated transfers under Ley 60 (para. 48.);(Section 2.01).

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- 32 -

(ii) Provision of funds as may be needed by EAAB to meet its commitrnents under the project(Section 3.01).

(iii) Provision of funds as may be needed by EAAB in the event of catastrophic breakdown of itswater systems (para. 58); (Section 3.01 ).

(iv) Commitment to enable EAAB to comply with all its obligations under the Loan Agreements,including the obligation to carry out its decisions based on the recommendations of itsinstitutional alternatives study (para. 37); (Section 3.01).

(v) Commitment to ensure that EAAB remains in compliance with the Action Plan targets and totake corrective action as needed (para. 54. ); (Section 3.01 ).

(b) From EAAB (covenants in both Single Currency Loan Agreements):

(i) Implement the agreed actions under the Action Plan, including completing the tariff structurestudy not later than December 31, 1995, and beginning to implement its recommendationsafter review bythe Bank not laterthan March 31, 1996 (paras 53 and 88); Section 3.01(b),and Supplemental Letter No. 1.

(ii) Maintain a ratio of liquid assets to current liabilities of not less than 1.0 in 1996 and 1997,and 1998 notlessthan 1.1 thereafterandaworkingratioofnotmorethan45%in 1995,1996, 1997, 1998, and 1999, and not more than 40% thereafter; (para. 54. ); (Section 5.02,5.03) supplemertal letter No. 3. EAAB should take appropriate actions as may be needed,including, but not limited to, tariff increases, cost reductions and other measures to increaseoperating income (paras. 54. and 88); (Sections 5.02 & 5.03).

(iii) Provide annual financial audits not later than 180 days following the close of the financialyear for the financial years ending December 31, 1995, 1996 and 1997, and not later 120days for each financial year thereafter (para 62); (Section 5.01 (a)).

(iv) Provide by September 30 of each year, annual reports of comphance with the targets andindicators in the Action Plan attached to Supplemental Letter No.2, provide by September30, 1997, a first report on progress achieved in project implementation, (para. 78.);(Section 9.07 of the General Conditions and Supplemental Letter No. 2).

(v) Prior to inviting bids for construction of any of the applicable civil works under the project,furnish evidence satisfactory to the Bank that EAAB has clear title to the lands and rightsthereon needed for the construction, has completed satisfactory resettlement of currentoccupiers of the land(s), and that the recommendations of the detailed engineering studieshave been incorporated in the construction plans; (para 79); (Section 3.05), and in respect toresettlement Supplemental Letter No. 4.

(vi) Carry out procurement in accordance with the Bank's guidelines and Loan Agreementprovisions (para 81.); (Schedule 4 and Section 3.02, and Section 2.02 of the SponsorAgreement).

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- 33 -(vii) Open and maintain two Special Accounts (one for each loan) on terms and conditions

satisfactory to the Bank; and use SOE procedures for disbursements less than US$ 250,000for goods and US$ 4,000,000 for civil works. (para 87); (Schedule 1, Schedule 5 and Section2.02(b)).

(viii) Show evidence of the establishment of an Environmental Committee not later than January1, 1996, and maintain such Committee with adequate technical staff support to help inimplementing the environmental management plan of the project (para 76); (Sections 3.06and 4.04, and Part F.6 of Schedule 2).

(ix) Maintain the UFW reduction unit fully staffed at all times, to coordinate, monitor and finetune the UFW reduction program during the entire penod of project implementation (para75); (Section 4.04).

(x) Provide quarterly reports of progress of project implementation, and semi-annual reports ofcompliance with the Action Plan targets (para. 78. ) (Supplemental Letter No. 2).

96. On the basis of the agreemnents reached, two Bank loans are recommended totaling the amount of US$ 145million, of which 60%, or US$ 87 million, as a fixed rate single currency loan, on terms of 9 years, including 3years of grace on each applicable sub-loan at the Bank's standard interest rate on fixed rate single currency loansas at each interest fixing date, and 40%/O, or US$ 58 million, as a floating rate single currency loan on termns of17 years including 5 years grace at the Bank's standard variable interest rate applicable to floating rate singlecurrency loans, all in US$.

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- 34-ANNEX I

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 1 Population Growth, Water Demand and Supply Balance in Bogota Metropolitan Area

A. Population Growth:

1. Bogota's population was growing at a phenomenal rate (close to 7% p.a.) in the fifties and sixtieswhen it almost doubled every ten years. Since then population growth has abated to about 2.6% p.a. duringthe eighties. It is apparently continuing to grow at that level or somewhat lower in the current decade, andis expected to decline to about 1.7% by the turn of the century. The population in the surroundingmunicipalities served, or to be served, by EAAB, is characterized mostly by low and middle incomegroups. Population in these urban centers, however, is expected to triple over the next twenty years as thenumber of municipalities to be served is also expected to increase.

2. Contrary to earlier forecasts of expected population levels, the XVI National Population Census of1993 estimated that the population in the Capital District alone (including the rural areas) reached 6.3million. Together with the populations of the surrounding municipalities of Soacha, Sopo, La Calera,Cajica, Chia, Tocancipa and Gachancipa, the total population in EAAB's service area rises to over 6.4million. This new estimate of the population of the Metropolitan area is over 12% higher than previousestimates, which had placed the population level at around 5.7 million, and which had been the basis forEAAB's planning of water and sewerage infrastructure to be implemented over the next decade.

3. EAAB's population projections adjusted for the results of the 1993 census data are shown in Table1. At the present rate of growth, the population in the area serviced by EAAB would reach 8.3 million by2000, and reach 10 million in 2010. The implications of this growth are two-fold: first, there are likelygreater numbers of low income residents in the newly urbanizing districts than had been previouslysuspected, attributable primarily to continued high levels of in-migration that probably exceeds 13% p.a.;the number of illegal connections are also estimated now at over 200,000; at the same time, with therelatively greater certainty in the amount of water produced and billed, there is now reason to believe that,given the existing evidence of larger household sizes at the lower income strata, the present levels of wateruse in Bogota imply a lower per capita consumption than had been calculated using previous populationdata.

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- 35 -ANNEX 1

Table 1: Population Projections

Year Total Population Population Served(Millions) (Millions)/ Percentase

Bogota Municip. Total Bo2ota Municip Total1990 4.83 0.54 5.37 4.01 83 0.29 54 4.30 801995 6.45 0.84 7.29 5.68 88 0.72 86 6.40 882000 7.30 1.00 8.30 6.57 90 0.89 89 7.46 902005 8.02 1.21 9.23 7.38 92 1.11 92 8.49 922010 8.73 1.32 10.05 8.21 94 1.23 93 9.44 j9

Source: EAAB and Bank Estimates

B. Water Consumption:

4. Average domestic water consumption, on a water connection and per capita basis, has steadilydeclined for the past fifteen years. Two main variables help to explain most of this decline. First, from1975 to the present more low income population gained access to these services as water service coverageincreased from less than 75% to 88% in Bogota. At the same time the number of persons per houseconnection decreased from 7.5 in the early seventies to about 6.5 at present. Both trends decrease averageconsumption on a connection basis, while the first also affects average consumption on a per capita basis.Second, services rates have steadily increased in real terms (about 30 % during the eighties). A regressionof price and number of connections (number of connections and persons per connection) versus residentialconsumption indicates elasticities of -0.28 and -0.27 respectively. This regression shows a high correlation(r2 = 0.98) and therefore helps to explain rather well the decline in average domestic consumption on aconnection basis. Estimates on a per capita basis are somewhat less reliable as data on the number ofpersons per connection are only available for census years (the last in 1993), and EAAB has not yet fullyanalyzed the numbers from the latest census. Nevertheless, as EAAB provides water services to nearbymunicipalities, mostly on a bulk basis, demand has been calculated for projection purposes, on a per capitabasis, as the number of connections in these areas is not well known or controlled by EAAB.

5. Per capita water consumption is derived from the recorded flows in the system and the estimatedpopulation figures, as well as the level of transmission line losses. EAAB estimated the per capitaconsumption (both residential and non-residential) in 1973 at 205 liters/day; in 1990, this figure haddeclined to 170 liters/day. It is estimated that the per capita residential consumption would remain at alevel of 128 liters/day, while the overal consumption would be around 177 lieters/day in 2000. For themetropolitan area as a whole, the consumption figures tend to be lower reflecting the insufficiency of dataat the household level for the surrounding municipalities. In terms of water demand however, the level ofsystem losses needs to be factored in order to determine the real level of production required to satisfy theconsumption.

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ANNEX 1

Table 2: Historical Consumption(Including Residential and non-residential consumption)

Year Average Consumption Average Service UFWPer Capita Level (%)

m3/connection/month served (%)Bogota (liters/day)

Metro Area1975 51.0 204 80 221980 42.9 181 85 331985 36.0 170 88 391990 32.5 170 88 42

1993 [32.4 165 ] 88 39Source: EAAB Commercial Department

6. Total water consumption statistics for Bogota show a steady rising trend over the past decade.Based on water flow recorded at the outputs of the water treatment plants, EAAB statistics show anincrease from a flow of 12.67m3/sec in 1985 to an estimated 17.66 m3/sec during 1994, implying agrowth of 0.5 m3/sec annually. The demand growth varies between 0.4 m3/ sec to 0.65 m3/sec per year.At the present average annual rates of growth, water demand in the metropolitan area would reach 25m3/sec by the year 2014. As discussed in the section below, EAAB's maximum deliverable supply is at25 m3/sec, provided the Tibito plant is fully rehabilitated, and the vulnerability of the Usaquen tunnel andthe Tibito pipelines are also substantially reduced or even eliminated.

Table 3: Historical Consumption By Major Users

Year Average Consumption Totalm3/month/connection Million m3/year

Percent of Total Consumption ( )Res. Indust. Commercial Official Other a/ Consumpt. Product.

1986 27.9 524 74 702 257(66) (7) (10) (5) (12) 1

1987 27.2 570 73 719 279 474(65) (7) (9) (5) (14)

1988 25.9 543 69 660 280 499(66) (9 (7) (7) (11)

1989 24.9 542 62 668 309 515(61) (7) (8) (6) (19)

1990 24.8 528 59 641 311 537(65) (7) (8) ( (15)

1993 24.5 414 59 1051 338 556(69) (6) (9) (6) (10)

a/ Includes block sales

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- 37-ANNEX I

7. The expected increase in rate levels will be offset to some extent by the increase in livingstandards. On the other hand, water consumption in the surrounding municipalities reports on a per capitabasis is about 70% that of BogotA. Population served in these municipalities account for 10 % of the totalin 1990 and 17% by the turn of the century. Information of industrial water consumption per unit ofproduction output is not available. Therefore, for projection purposes the overall consumption trend, on aper capita basis, has been adopted.

C. Demand Projections

8. Water consumption and production projections over the next 20 years are presented, based onthe above mentioned assumptions and plan to reduce UFW (see below):

Table 4: Demand Proiections

Year Popul. Per Capita Total Demand UFW ProductionServed Use i/ m3/year (%) m3/year

l________ (million) liters/day (million) (mill)1995 6.46 179 422 39 692l 2000 7.52 175 474 31 6872005 8.49 176 522 24 6872010 9.44 175 567 _ 24 7461/ Includes both residential and non-residential water use

D. Unaccounted For Water

9. Unaccounted for water was on the rise for many years. As part of the BogotA IV Project, EAABundertook with the help of consultants a detailed analysis of this problem. The main causes of UFW were:i) illegal uses; ii) errors of micro-metering at the retail end; iii) physical leaks in the system; and iv) errorsof bulk metering at the treatment plants. The level of total UFW was estimated at over 40% in 1990 andhad only declined marginally to under 40% in 1993. Taking into account the level of UFW, the apparentlevels of water consumption lead to substantially higher levels of demand at the output of the treatmentplants. Commercial factors, namely, illegal connections, unmetered connections and faulty metersaccounted for over 55% of the UFW in 1993, technical factors, mainly, leaks in the distribution systemand in the house connections accounted for another 23%, while, problems of macrometering accounted forthe remaining 22%.

10. EAAB initiated, in mid 199 1, an ambitious program to reduce UFW. As part of this initiative,overall responsibility and coordination of all actions to reduce UFW has been assigned to a special unitreporting to the general manager. The program started by the identification of illegal connections and byFebruary of 1992 some 80,000 illegal connections had been located and are now officially registered in thecommercial system. The proposed project will provide funds to improve meter maintenance, better pressuresectoring in the distribution system, replacement of old pipes and detection and correction of illegalconnections. Based on this detailed program, UFW is expected to decline to about 30% by the turn of thecentury.

11. The effect of the reduction of commercial and physical losses is substantial. A parallel reductionof commercial and physical losses is assumed, as the UFW reduction program is directed at reducing both.

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The reduction of commercial loses will help the finances of EAAB as more water will be billed. Thereduction of leaks will save on production costs (chemicals and pumping). Both will have an effect onwater conservation and therefore total production will decrease in relative terms. However, given the latestestimates of total demand in the Bogota metropolitan area, it is unlikely that the need for additionalcapacity can be postponed much beyond the early part of the next century. Nevertheless, with the UFWprogram in place, expected savings in additional production areas is substantial as shown in Table 5 below:

Table 5: Potential Reduction in Production

Year Total Demand UFW (%) Savings in Productionmill m3/yr. Without With mill m3/yr.

1995 420 42 39 361996 431 42 37 591997 442 42 36 711998 452 42 34 941999 462 42 32 1172000 474 42 31 1302001 484 42 29 1532002 494 42 28 166

Total 826

E. Supply Constraints

12. EAAB has three major sources of water supply; first is the Chingaza system which provides areliable system capacity flow of 14 m3/sec, based on previous hydrologic records and the estimatedreliability of the system parameters; second is the Tibito system fed from the upper reaches of the RioBogota, which can provide a maximum flow of I Om3/sec; third is the much smaller Tunjuelo system thataccounts for about I m3/sec of available flow. At present, the Tibito system is in need of majorrehabilitation and is only providing about 60% of its capacity flow (see Annex 2). As the production costsare also higher at the Tibito plant, due to the need for extensive pumping and substantially higher costs oftreatment, EAAB is mainly relying upon the Chingaza system to satisfy about 60% of the total currentwater demand. This adds to the vulnerability of the main transmission tunnel from the Chingaza supply.

13. EAAB estimates that with these three sources of supply, subject to satisfactory completion of theproposed rehabilitation and vulnerability control investments in the Tibito and Chingaza systems, amaximum flow of 25 m3/ sec would be available. EAAB's consultants have now estimated that based onthe possible growth of demand, this supply level will need to be augmented as early as 2003, and no laterthan 2014. The earlier scenario is reached if demand grows faster than has so far been taken into EAAB'splanning estimates. The main reasons for assuming a higher rate of growth of demand are two fold: first, itis likely that EAAB's efforts at reducing UFW levels will be only moderately successful, given thecontinued migration into the Bogota metropolitan area and to the urban perimeter; second, as more houseconnections are made, it is also likely that water consumption per connection will grow modestly even asper capita consumption declines marginally over the next several years.

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14. EAAB's consultants now estimate that given the uncertainties surrounding the real demand forwater in the Bogota metropolitan area, and the paucity of detailed studies, EAAB must plan for thepotential maximum growth of demand and start the process of investing in new water sources as early as1997. Further studies are needed to examine the detailed cost of the proposed alternatives and to choose theoptimal investment path.

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ANNEX 2

ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 2 Water Supply, Sanitation and Pollution in the Bogota Metropolitan Area

1. General. The Capital District and surrounding municipalities account for a population estimated ataround 6.4 million in 1993, which is projected to reach 9.5 million by the year 2010. Of the present population,over I million represent the urban poor, many of whom live in unsanitary conditions on the banks of the highlypolluted Bogota River, or in zones of illegal development with relatively poor access to water and sanitationservices. The Capital District is not only the most populous urban concentration in the country, but also themost industrialized, with about 30% of the nation's industries located in the Bogota River watershed, and most ofthe commercial activity of Colombia taking place in this river basin.

2. Water Supply. The Bogota Water Supply and Sewerage Company (EAAB) is responsible for watersupply, sewerage and storm drainage services in the Capital area; it also provides bulk and retail water supplyservices to surrounding municipalities, of which the most important and rapidly growing is Soacha. Given therelative institutional weakness of these municipalities and the large economies of scale in water production, it islikely that EAAB's influence in the Savanna of Bogota will grow over time. Service coverage in the Capital areais high by national standards. The total population to be served by house connections in the metropolitan area isexpected to grow from about 91 % in 1990 to about 94% by the year 2010, assuming a stable and enablinginstitutional environment, the adoption and implementation of a coherent strategy supported by all the majorstakeholders, and the strengthening of EAAB's financial solidity. Meanwhile, the major concern of the CapitalDistrict authorities, EAAB's current Administration, and the national Government is to reduce the vulnerabilityof the system, which will only partially be relieved by the completion of the San Rafael system for reservecapacity in late 1995. The most urgent priority in water supply in the Capital area is therefore to carry outrehabilitation and long-neglected maintenance works to enable the two main systems (Chingaza and Tibitoc) tooperate at full capacity, and to adopt a least-cost approach of optimization of use of installed production capacitythrough improvements in the production, water treatment, and transmission/distribution portions of the existingsystems. Such an approach should help meet water supply needs until the year 2014 and relieve fears ofrationing and public discontent caused by service interruptions and lack of distribution network in the "barriossubnormales". Intractable corrosion problems in the Tibitoc system and frequent break-downs of tunnels in theChingaza system have led to existing plant being used only at two-thirds of capacity, and water supply being shutoff in parts of the city for days together. Despite some emergency maintenance in the last year, there isconsiderable scope for a more systematic approach. In any case, the installation of new production capacity,along with the related water treatment and distribution network, other than the optimization type approachmentioned, would not only be much more expensive, but would probably require at least 12 years for theinvestments to come on stream. The population of the metropolitan area is expected to continue growing and isexpected to reach 13 million inhabitants by the year 2025. Consequently, the urgent need to start studies,planning, and design process for this later investment has been recognized. The first stage in that direction hasbeen taken by DNP and EAAB through hiring of the Colombian consulting firm INGETEC which is preparing apre-feasibility study for development of the future water sources of Bogoti. (see Annex 1)

3. All water supplied is treated and chlorinated to meet or exceed WHO water quality guidelines. Allwater connections and production sources are metered. Unaccounted for water (UFW) increased steadily from

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22% in the early 70's to an estimated 42% by 1990. The main cause, accounting for about 65% of the UFW, layin problems in the commercial system, of illegal connections and faulty meters, as well as internal corruption.The other 35% of UFW was caused by leaks in the distribution system and house connections, and problems inmacrometering. Under the Bank-financed Bogota IV project, the issues were studied and a comprehensive plandeveloped to reduce UFW gradually. Initiation of implementation was, however, delayed, and even with arenewed emphasis under a more vigorous management, only limited progress has been achieved in the last yearin reducing UFW (regarding macrometering in particular). UFW is currently estimated at around 39.7%. Initialefforts have been directed to improve the commercial system and the security to access its software, as well as toidentify areas of the city where massive illegal connections are a problem and leaky pipes need to be replaced.Also, the commercial department has been restructured and restaffed, with the dismissal of about 150 staff ofEAAB in March, 1993, assistance on a continuing basis from a special in-house team from the Office of theProcurator-General to weed out corruption and carry out arrests has been established, and an approach to sub-contract auditing of the commercial department's activities to an independent agency is being carried out. EAABhas sharpened accountability for the UFW reduction program by the creation of a unit, reporting directly to theGeneral Manager, with the mandate to coordinate the actions of different administrative units of EAAB assignsto specific tasks to make this reduction program a reality and maintain the gains accrued over time. Agreementswill be reached during negotiation that EAAB will maintain the UFW reduction unit fully staffed at all times, tomonitor, fine tune and coordinate the UFW reduction program.

4. Average water consumption per connection is about 32m3,'month, of which about 69% representsresidential consumption, and about 15% industrial and commercial use, with the rest accounted for by the officialand "mixed" sectors and by consumption of nearby municipalities. Water consumption does not vary by morethan 15% on a month by month basis. As discussed in Annex 1, since 1975, average unit water consumption hasbeen steadily declining on account of the increase in service levels and corresponding lower water consumptionby low income groups and increase in service rates. Fears of impending water rationing because of low waterlevels in reservoirs led to the introduction, in the period of electricity rationing, of a water savings campaign inthe second half of 1992, with only limited and temporary results. However, at the same time, water tariffs wereraised, and adjusted upwards again in the first semester of 1993. These adjustments would have an impact onaverage consumption and EAAB's revenues. The feasibility of implementing demand management policieswould be considered in the framework of the Santafe I project.

5. The Vulnerability of the BogotA Water Supply System. The Colombian authorities (both Nationaland those of the Bogota Capital District) have been concerned by possible scenarios of water rationing inBogota. To address this concern, a vulnerability control component was incorporated in the Santafe I project,with a specific goal of ensuring reliable water supply to the city from its two main treatment plants: Wiesnerand Tibito.

6. Analysis of the Bogota water supply system demonstrates that at present both main water supplysources are exposed to significant levels of risks which may result in severe interruptions in supply, although theprobability of such an occurrence, while increasing, is considered still to be small.

7. The entire production of the Wiesner plant (14 m3/s) is conveyed to the city through the 2.7 km long, 3.5m diameter Usaquen tunnel. This tunnel was built at the same time and used the same construction technologyas the El Faro tunnel which supplies raw water to the Wiesner plant. The El Faro tunnel has suffered severalfailures in recent years as a consequence of collapse of sections of its unlined walls, with the effect of waterrationing in Bogota during the repair periods. The vulnerability of the El Faro tunnel was partially addressed inthe Bogota IV project through construction of the San Rafael reservoir for reserve capacity. However, since the

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ANNEX 2

latter is only expected to be operational by late 1996, because of delays incurred, the technical issues of the ElFaro tunnel can only be analyzed and solved after San Rafael comes on stream. Since similar risks could affectthe safe operation of Usaquen tunnel, the adoption of measures for risk control of that tunnel are of highestpriority.

8. The Tibito treatment plant, with a nominal capacity of 11 m3/s, has not been refurbished for the last 26years. Under normal operating conditions it supplies about 4 m3/s. Higher flows if required, can be assured onlyfor limited periods of time. The full capacity of the plant needs to be restored in order to ensure reasonablewater supply in cases of maintenance or emergencies at the Wiesner plant.

9. The treated Tibito water is conveyed to the city through two water mains. The larger one, a 2 mdiameter 55 km prestressed concrete cylinder pipe (PCCP) suffers from corrosion problems which have causedeleven failures during the period 1978-1989. At present it is operated at less than half of the design pressure andconsequently conveys lower flows. Even with present low operations, the risk of bursts still exists, exposing thepopulation to flood risks and to unreliable supply in cases of emergency.

10. To address the problems mentioned above, a vulnerability control component consisting of threeoperations was included in the project:

(i) Rehabilitation of a Section of 31 km of the 2m diameter PCCP Tibito treated water transmission pipeline;

(ii) Rehabilitation of the Tibito water treatment plant so as to restore its capacity to treat the nominal flow of 11

(iii) Construction of a backup Usaquen tunnel which will ensure that the treated water of the Wiesner plant willreach the city at all times.

11. Sewerage and Drainage. About 83% of the population of the capital area was estimated to haveaccess, by house connections, to sewerage services by 1990. About 70% of the city is served by a stormdrainage system. All sewage generated in the city is discharged without treatment into the Bogota River. Servicelevels in sanitation are expected to grow to about 90% for Bogota and 88% for the metropolitan area by the year2010. The sewerage and drainage systems are combined in the old sections of the city. In other areas, sewerageand drainage are separated. In practice, many illicit or unauthorized connections have been made to the twosystems, and therefore they operate, to some extent, as a combined system. The problem created by these illicitconnections must be studied in detail as they are a determining factor in the definition of specific actions. Thesewerage and drainage systems included some 4,580 km. of pipes, 81 km of canals and 707,000 sewerageconnections by 1990.

12. The domestic and some of the industrial waste water generated in the Bogoti area is collected byinterceptors parallel to existing natural water courses that were built to discharge their waters directly back tothese courses below populated areas. As the city has expanded, some of these discharges are now being made indensely populated areas, thus preventing orderly urban growth. In addition, overflows of the combinedsewerage system are also often discharged, under all weather conditions, to the drainage canals (often withreduced capacity because of neglect of maintenance) in densely populated areas. These conditions pose highhealth risks to the population. To remedy these problems, existing interceptors need to be extended, and newones built to discharge wastewater farther downstream from populated areas. The natural water courses anddrainage canals receive the water mn-off which is fmnally discharged into the Bogota River. Levees have been

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built on both sides of the river to protect the city from extensive flooding. In the lower reaches of these watercourses, peak flow attenuation lagoons need to be built to accommodate storm flows before discharging into theBogota River. Pumping stations (in Torca and Tintal) are needed to discharge the storm and waste waters duringperiods of high stage in the Bogota River.

13. Feasibility studies and final designs carried out with financing under the Bogota IV Bank operationidentified and analyzed alternative solutions for improving and expanding the sewage and drainage collectionand disposal system of the area and recommended the most attractive solution from a technical and economicpoint of view, with a scheme corresponding to the least-cost solution

14. Bogota River Pollution. As the most intensively used river in Colombia, the Bogota River is also themost polluted. Its principal uses are water supply for human consumption, irrigation, industry, electric powergeneration, and some recreation in the upper basin. The main pollution sources of the Bogota River are domesticwastewater, industrial wastes consisting of liquid wastes and sludge, including toxic and hazardous wastes,municipal solid wastes, and agricultural run-off. The city of Santafe de Bogoti, located along the middle sectionof the river, is by far the major polluter. The discharges, either direct into the river, or into the three maintributaries that cross the city (the Salitre, Fucha and Tunjuelo) include both the wastes of some six millioninhabitants, and of about 10,000 industries. The estimated total organic load currently discharged to the riverfrom the city is about 350 ton/day BOD, out of which about 30% is contributed by industrial wastes. Thedomestic wastes contain large amounts of oxygen-depleting organic matter, and extremely high levels ofpathogenic organisms. Of the total industries in the metropolitan area, about 3,800 are of a considerable size,and about 85% of the industrial discharges are into the Fucha basin (the rest is about equally discharged into theTunjuelo and Salitre basins); the discharges are either direct, or through the sewerage system. In addition totheir high organic loads, the industrial wastes contain toxic material such as heavy metals. The industrial wastespresent a special problem in the case of Bogota, requiring specific attention. Unfortunately, the varioustreatment options presented by vendors so far would not help address this problem, and the on-going IDB fundedproject with the area's environmental protection agency (CAR) only deals inter alia, with reducing pollution atsource from some industries up-river of the city. Approaches to institute a subsidized line of credit to encouragepollution-abatement by industries have not so far materialized, and enforcement capacity is negligible. Althoughin the past, disposal of municipal solid wastes in the Bogota River and its tributaries was a major source ofpollution, since the privatization of collection services in 1988, there have been major improvements, and about95% of the city's solid wastes are properly collected and disposed of in the municipal sanitary land fill. Inmarginal zones which are not accessible to collection vehicles, solid wastes are still dumped in the river. Ingeneral, solid waste disposal does not represent a major source of water pollution, provided that standards ofcollection and disposal remain at least at present levels.

15. Since heavy pollution loads are discharged from Bogota to a river of relatively small flow, water qualitydata amply demonstrate that downstream from the first point of discharge of the Bogota wastewater, waterquality deteriorates drastically. In general, the water downstream of the city and all the way to the confluence ofthe river with the Magdalena River is of very poor quality: practically raw sewage.

16. The most severe threat to public health is the potential effect of water with an extremely high content ofpathogenic organisms flowing in natural, uncovered waterways which cross highly populated residential areas ofBogota. Chronic flooding in the metropolitan area (resulting from the topography, and from water brought fromneighboring watersheds ending up as wastewater discharged to water courses of limited capacity) causes directcontact of the population with the contaminated water. In addition, the use of the river water for irrigation in themiddle and local sections of the Bogota River exposes the population consuming these irrigated food products to

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ANNEX 2

health hazards, as well as the farm workers and population residing in the vicinity of these irrigated fields. Mostof the irrigated crops are sold in the Capital District. The high incidence of gastro-intestinal diseases,particularly diarrhea, in Santafd de Bogota and neighboring towns is amply documented. The impacts ofcontamination include difficulties in operating the hydroelectric plants, the costs of water treatment, particularlyat the Tibito in-take, and the unacceptability of use of the river as the water supply source for the small town ofAgua de Dios in the lower basin.

17. The ecological effects of water pollution have been high. Over the last 20 years, many of the species ofthe local fauna and flora have been lost or are severely threatened, and no vertebrates (fish or migratory birds)survive in the Bogota River downstream of Bogoti. In addition, given the loss and degradation of habitat in theSabana de Bogota, the once extensive Bogota wetlands have almost disappeared due to land-filling andpollution, and with them several unique bird species. Pollution load discharges to the Magdalena River havealso had an adverse impact on areas outside the Bogota River watershed, although greatly mitigated by thedilution factor of 50 to 1 between the two rivers, and the natural aeration effects of the topography.

18. CAR defined, in 1987, water quality criteria (see Appendix 1) for different reaches of the Bogota River,with the permanent criteria to be achieved from 1998 onwards, thus permitting application of intermediatestrategies in the preceding period. Quality parameters for 1998 along the middle section of the river, i.e. theCapital District, (between the confluence points with the Salitre and Tunjuelo streams) can be achieved by a veryhigh level of treatment (probably tertiary treatment) within the city limits, or by collection and conveyance of thewastewater of Bogota to a point downstream of the Tunjuelo confluence, and its treatment at this point to a lowerlevel (probably secondary treatment followed by disinfection). The results of various pollution control studieswhich have been carried out indicate that the investments required to achieve the quality goals are extremelyhigh, estimated at around $1.5 billion, and beyond the current financial capacities of any of the relevantagencies. The adoption of pre-defined water quality criteria has meant that these studies, in general, have notanalyzed the environmental impact of the proposed projects and of the resulting water quality, leading to strictlytechnical approaches which have not incorporated environmental and institutional considerations. In preparingthe Bogoti V Pollution Abatement Project, the Bank attempted, during the period 1990-92, to contribute to astaged, strategic approach, which would have meant in the first phase, construction of an interceptor along theBogota River, carrying out a cost-benefit analysis of different treatment options, a study of the specific problemsof industrial pollution with recommendations for solutions consolidating the institutional and financial capacityto deal with the intrinsic externalities and cost-recovery issues, as well as for wetlands management andecological conservation. With Bank cooperation, the Bogota River Committee (BRC) was established, and asimple charter was signed by the then Mayor of Bogota, the heads of the National Planning Department (DNP),CAR, EAAB, the Capital District's environmental agency (DAMA); and the Governor of Cundinamarca, withthe President of the Republic as a witness to the event. Since the BRC was only a technical, advisory committee,rather than a policy-making body, it was limited in scope, and could not surmount the intransigent position ofsome agencies down-playing any need for an extensive cost-benefit analysis, and insisting on a definition of theproblem as only one of EAAB going ahead urgently with waste water treatment.

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ANNEX 2

ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Appendix 1: Water Quality Criteria Adopted by CAR

1. CAR, the regulatory agency responsible for the administrative management and control of therenewable natural resources in the Bogota river basin, formulated in the Agreement No. 58 of 1987(Chapter IV, Article 28) the water quality criteria of the rivers in the area of its jurisdiction, classifyingwater quality in the water courses into one of the four following classes, according to their actual andpotential use:

Class A: Human and domestic use after conventional treatment, flora and fauna preservationand use for watering cattle and for agriculture.

Class B: Flora and fauna preservation, use for agriculture and cattle.

Class C: Agriculture and cattle use.

Class D. Energy generation and restricted agricultural and industrial uses.

The limits of the related parameters for the different classes are:

CLASS A B C D

BOD (mg/l) < or = 5 10 30 100DO (mg/l) > or = 6 5 2 -

pH 6.5-9 6.5-9 4.5-9 4.5-9T-Coli MPN/100ml < or = 5.000 5.000 10.000 -

F-Coli MPN/lOOml < or = 1.000 1.000 - -

2. Limits of additional parameters for each class are presented in Article 26, Chapter III ofAgreement 58. Based on the above classification and considering the actual and potential uses of water, thefollowing water quality objectives are established in Article 28, Chapter IV for mean hydrologicalconditions:

3. Bogota River watershed - Sisga/Tibito sector (#14): It is located along the Bogota river, from theconfluence of the Sisga river to the confluence of the Susagua-Barandi-Ilas River near Tibito, it is assignedto be Class A.

4. Bogota River Watershed-Tibito/Tequendama Falls (#15): It is located along Bogota River and itstributaries, from the confluence of Susagua-Barrandillas River to the Tequendama Falls, except theTuesaca, Sapo, Frio, Negro, Tunjuelo, Soacha, Muna and Balasillas Rivers and tributaries.

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ANNEX 2

5. More specifically in accordance with #15.2 the water quality in the Bogota-Salto watershed,formed by the Bogota River and its tributaries, with the aforementioned exceptions, from the confluence ofthe Juan Amarillo (Salitre River) to the Salto del Tequendama will be:

From Juan Amarillo Class D Class B Class B(Salitre) to Fucha

From Fucha to Tunjuelo Class D Class D Class B

From Tunjuelo to Salto Class D Class D Class C

6. Bogota River Watershed, Tequendama Falls-Apulo sector (#18): It is formed by the Bogota Riverand its tributaries, from Tequendama Falls to the confluence of the Calandaima River:

(a) Water flows other than Bogota River will be Class A.(b) Bogota River between the mentioned limits will be Class B.(c) Bogota River from Calandaima River confluence to Apulo River confluence will be Class C.

7. Bogota River lower watershed, Apulo-Magdalena Sector (#19): It is formed by Bogota River andits tributaries from the Confluence of the Apulo River to its confluence with the Magdalena River:

(a) Water flows other than Bogota River correspond to Class A.(b) Bogota River between the above mentioned limits corresponds to Class C with the exception

that the water can not be used for irrigation of fruits consumed non peeled.

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ANNEX 2

Table I

Monthly Distribution of Water Consumption During 1993in Bogota and the Neighboring Towns Serviced by EAAB

(m3)

MONTHS BO(;GOTA C1lA CAJICA SOPO TOCANCIPA CALERA GACHANCIPA TOTAL

December92 28,066,694 420,547 232,985 58,857 19,986 71,672 19,300 23,508,126

January93 23,996,487 361,374 220,153 52,443 31,259 53,058 18,213 24,755,073February 27,895,524 372,151 228,143 62,913 39,223 59,710 16,755 28,698,153March 33,205,528 410,173 227,716 58,202 46,015 71,357 18,495 34,068,972April 20,532,924 425,512 231,040 59,989 48,616 71,022 16,696 21,412,180May 27,651,201 407,205 204,365 46,960 39,258 66,606 13,230 28,453,994June 28,601,204 398,939 220,955 57,124 35,338 71,612 14,850 29,427,698July 25,661,205 497,809 221,367 57,224 49,978 71,419 17,382 25,507,135August 26,495,812 418,767 216,990 30,878 42,991 69,259 14,713 27,337,745September 28,131,534 390,070 299,380 55,420 47,161 67,031 8,864 29,035,922October 31,628,721 410,353 251,861 60,715 61,374 74,411 8,897 32,521,557November 33,261,614 341,990 225,228 55,453 45,966 64,996 8,904 34,635,172Dcrember 18,602,901 449,209 258,321 61,114 65,565 77,000 9,583 19,645,040ITOTAL .325,664,655 4,323,552 2,805,519 653,435 .552,744 817,481 166,5S2 335,49S,646

Source: EAAB Informaticn Systmes Department and Ccntral Billing Department

Table 2Water Production by Treatment Plants

(For 1993)

.REA .,METrPLANTSv:-. almo son alo LN LgVR. El Delirb MbIt2 - CUM . TOTAL

nnh M 9nh aW3/i M3Wmtk m3h M31Maaliu m3hs M&UoI A% M3liM ml's 04Matbh m1 MSa3onhi .3s day

Dsecember/92 2.682 0 262 0 723 0 63 1 9,332 0 33.a16 1.07 4s8.79 12t

JanuwY93 2,2s8 0os 334 012 6n7 0.23 240 0.09 3,396 5.00 28.057 104| 44.992 1.4s1Februry 2.137 0.23 264 0.11 621 0.26 191 0.08 3,363 3.54 39.325 12.95 45.101 1.539March 2.413 0.90 393 0.12 714 0.27 97 0.04 9,797 3.66 33,365 12.46 46,7s2 1.507April 2.343 090 259 0.20 666 0.25 139 0.05 9.351 2.61 33,113 12.7a 45.065 1.529May 2.660 0.99 333 0.12 701 0.26 61 0.02 9.245 3.45 34.203 12.77 47.283 1.523)une 2.a06 1.03 105 0.04 651 0.25 0.06 t623 0.33 3.283 12.69 45.067 1.302July 2.906 1.91 317 0.12 657 0.25 0.00 9.215 3.44 33,409 22.47 46.303 1.560Augst8 2.799 1.05 334 0.12 650 0 24 0.00 16,236 6.06 22,396 10.75 48.325 1.373Sqatanber 2.619 1.01 315 0.2 64s 0.25 0.00 0.239 6.41 33.6a7 12.97 46.040 1,335Odabar 2.424 0.91 202 0.11 662 0.25 0.00 9.164 3.42 35.604 13.26 4l.032 1.549Narubar 2.443 0.94 252 0.20 667 0.25 0.00 866 3.35 32.605 12.6 45663 1,522Da9b71 322312 0.26 269 0.10 694 0.24 0.00 9.04 3.33 34.994 13.0 47763 12641TOT;A17 30,150 3,463 7998 72 1.2 376,432 557,416

AwtrsC 3,769 1.43 424 0.16 999 0.39 92 .04 22,07 s.73 49,111 2S.76 46,313 1,62

Source: EAAB Information Systems Department

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Table 3BIMONTHLY WATER BILLING FOR JANUARY - DECEMBER 1993

(BIMONTHLY AVERAGES)

11mw N-un-.- .b -: .- t. ~m . .p,m - .r . Ay!ng" ) . -: A p j u::: M3:

Redden"lCategcy I 29,902 1.530,948 51.20 151,442,217 30,398,944 181,841,181 98.92 19.86 118.78Categcy2 228,734 11,486,574 50.22 1,446,833,S72 475,798,959 1,922,632,832 125.96 41.42 167.38Cateqcay3 296,753 14,649.803 49.37 2,744,812,969 1,193,952,224 3,938,765,193 17.36 81.50 268.86Categ-ry4 124,738 5,433,972 43.56 1,519,136,325 671,710,409 2,190,S46,734 279.56 123.61 403.18Categeys 53,393 2,575,826 48.24 1,045,959,420 482.516,920 1,528,476,340 406.07 17.33 593.39Categcry6 22,582 1,327,5S7 58.79 635,660,729 298,253,007 931,913,735 478.81 223.15 701.98Subftl 756,102 37,004,710 4L94 7,543,S45,532 3,152,630,463 10,64,47C,115 203.26 3514 2n9.0e

MindCdegayl 674 45,420 67.37 7,736,860 2,524,010 10,260,870 170.34 55.57 225.91Categay2 12,744 901,403 70.73 176,084,285 70,766,620 246,850,905 195.34 78.51 273.85Caftcry3 36,028 2,643,S56 73.38 620,513,658 298,955,759 919.469,416 234.72 113.08 347.80Cdegoy4 6,018 539,612 89.67 15S,938,844 77,082,848 236,021,692 294.54 142.85 437.39C*g-y5 901 120,600 133.93 45,708,750 21,292,857 67,001,607 379.01 176.56 555.57Cdmegcry6 151 17,012 112.91 7,689,556 3,80,494 11,570,051 452.02 228.11 680.12Sub_tl 5,516 4.7903 7151 1,016,671,953 474,502,538 1,491,174,541 23.22 111.13 349.41

Ccamiol 42,629 5.085,529 118.83 1,912,810,931 1,209,158,429 3,121,969,359 377.61 236.70 616.32Idusrial 4,019 3,327,961 828.09 1,116,362,343 821,869,064 1,938,232,007 335.45 246.96 582.41Spedal 683 1,443,645 2,113.17 139,935,081 72,621,566 212,556,646 96.93 50.30 147.24Oficial 1,506 3,167,S97 2,103.05 S56,323,968 474,544,142 1,330,868,110 270.31 149.80 420.11S3b1ol 43,337 23,025,032 266.30 4,025,432,323 2,578,193,201 6,603,626,122 310 196 50S

TOTAL 361,455 54,297,645 63.01 12,55,S4S,S0S 6,205,326,252 13,789,276,673 232 114 346

Source: EAAB Daily reports of the Information Systems Department(I)Ihidngfixad d-

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ANNEX 2

Table 4Length of Water Pipes in the Bogota NetworkDistributed Accofding to Pipe Diameter (1992)

12n 8.20 0.14%3/4- 9.00 0.15%

1. 44.90 0.77rI 1/12 77.30 1.32%

2' 276.70 4.72%2 1/2' 26.50 0.45%

3 2,399.10 40.81%4- 1,063.60 1.14%6" 813.20 1387%!S. 339.30 5.79"!.9" 2.40 0.04%

10" 17.10 0.28%12' 381.50 6.51%14' 10.30 0.18%16' 47.00 0.80"/*1i8 1.40 0.02%20' 23.70 0.40"!.22' 8.10 0.14'%24" 78.10 1.34%27' 0.70 0.01%28' 1.00 0.02%30" 16.40 0.28%34' 18.90 0.32%36" 16.60 0.28%39- 0.50 0.01%42' 33.30 0.57%48' 1.40 0.02%60' 46.80 0.80%/78" 54.00 0.92%

> 78- 46.20 0.79%TOTAL..: :.:64M .- O0.:.

Lenth ofWater Pipes In the Bogota Network

Distributed according to material type (1992)

Steel 613.5 10.48%CoutIron 194 3.31%Asbestos cement 3029.5 51.75%Concrete 334.4 5.71%P.V.C. 1682.8 28.75%TOTAL ..... ..... .. .. . : 100.00%

Source: EAAB Engineering Department

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ANNEX 2

Table 5Number of Water Pipe Bursts During theYear 1992 in the Bogota Water Supply

Network Distributed According to Pipe Diameter

Pipe Number of Percentage ofDiameter Bursts total burst %.

c 3 440 4.01%t3 5,542 50.45%"14 3,071 27.95%'16 1,111 10.11%"3 620 5.64%

"10 21 0.19%"112 140 1.27%

> "112 41 0.37%10986. 0. 0

Number of Water Pipe Bursts During theYear 1992 in the Bogota Water Supply

Network Distributed According to Material of Pipe

Material N mber of Percentage ofS ; T yl0;t pe t; :i0- 0 - :Burstsllg :0i;ili;;0 total bUrstsf %J4: .;t

Asbestos cement 9,003 81.95%P.V.C. 1,322 12.03%Others 661 6.02%TOTAL 10,986 ::0.00%

Source: EAAB Engineering Department

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ANNEX 2

Table 6Volume of Storage Tanks in the

Bogota Water Supply System

Percentage of TotalStorage Tank Name Tank Volume (M3) Storage Volume %

CASABLANCA 143,000 31.70%PARQUE NACIONAL 51,200 11.40%VITELMA 36,000 8.00%SAN DIEGO 33,000 7.30%SANTA ANA 30,000 6.70%EL SILENCIO 30,000 6.70%SANTA LUCIA 28,000 6.20%CIUDAD BOLIVAR 20,400 4.50%CAZUCA 10,300 2.30%CHICO 7,000 1.60%MONTEBLANCO - EL UVAL 9,000 2.00%JALISCO - CASTILLO - VOLADOR 3,400 0.80%SAN DIONISIO 6,300 1.40%SAN VICENTE 7,800 1.70%LOS ALPES 3,700 0.80%LOURDES 2,400 0.50%LAS COLUMNAS 1,300 0.30%JUAN REY 4,300 1.00%LOS PINOS 1,600 0.40%SUBA MEDIO Y ALTO 6,000 1.30%NORORIENTALES 4,600 1.10%LA CAPILLA 1,300 0.30%VIEJA - P. RUBIO - PARAISO - CHAP. 3,000 0.70%EGIPTO 1,900 0.40%EL QUINDIO 4,700 1.00%TOTAL- 450,600 100.00%

Source: EAAB Engineering Department

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Table 7Number of EAAB Employees per Vlcepresidency and Number ofRetired Employees

A064t:t eVepres. Soerv*8. VIe:y k.. fr_: chia Adml-ldys Tar dg l-I C _: :: 8 TeeM 18.*.4M~b Deprar6zta? MA%naganiOaf: PUsas,fng CawieaI opuastlwqia V"Ivsp,r vkeptra;.~ vkce"iea. Vkqirm.: EAi*k~. E.b,qay60

Domber 3i/91 105 16 46 35 1,476 227 496 335 178 2,914 2,083J.nuary31/92 W05 18 46 36 1.482 228 487 335 173 2,910 2,096Feuary23 107 18 47 36 1,493 229 488 334 174 2.926 2,098March31 109 17 47 37 1,506 227 487 334 177 2,941 2,093Apil 30 108 20 44 36 1,501 230 480 330 183 2,932 2.104May31 107 20 43 36 1.487 220 473 321 215 2,922 2,105June30 108 21 43 36 1,482 216 474 321 214 2,915 2.108July31 10[ 22 44 34 1.478 215 467 344 133 2,900 2,110ALigust31 109 20 44 35 1.463 213 453 343 183 2,865 2.150Seplembe 30 L09 21 44 35 1,453 211 444 346 174 2,337 2,173Octder31 [la 19 44 34 1,441 209 441 342 173 2,813 2,190Nwvnber30 l1o 182 32 51 1,245 163 404 311 289 2,792 2.214Dembe 31/92 110 180 32 52 1,226 164 399 308 287 2,753 2,256Ch9 irintD39U33 : 4 - 4 (2) . H (13) 14) (41): 3 5 (4jiPercentchamp 4 25 (4) (1) (6) (1) 2 3 (2) 3

Source: EAAB Information Systems Department

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ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 3 Environmental Issues

A. Institutions with Responsibilities for Pollution Abatement and Environmental Protection in theProject Area

(i) Regional Autonomous Development Corporation (CAR)

1 The Corporacion Autonoma Regional de la Sabana de Bogota y de los Valles de Ubate yChiquinquira (CAR) is a public entity whose governance under the new law 99, was recently shifted fromthe National Planning Department (DNP) to the Ministry of the Environment. Within the Bogota Riverwatershed, it has ascribed to it many of the environmental management functions (such as protection ofnatural resources, parks and wetlands) of the weak national environmental agency, INDERENA. CARalso establishes and implements rural and municipal development policy in the Bogota River watershed andregulates land and water use, mineral extraction and power generation (delegated to EEB). CAR managessewerage and waste water treatment in the BogotA valley municipalities outside of the Capital District.Within the Capital District these functions are delegated to EAAB. CAR is currently implementing a US $70 million IDB loan to extend the supply of water for irrigation and construct waste water treatment plantsin some 23 towns located in the upper and lower BogotA River drainage. Under the new Law 99, CARalong with the other Corporaciones Aut6nomas Regionales, will assume the primary responsibility forenvironmental management in the country, each one in its corresponding area of jurisdiction. In thisrespect CAR would be responsible for the environmental management in the entire basin of the BogotAriver, excluding the area of the District of BogotA which falls under the responsibility of DAMA.Surprisingly, CAR has always been reluctant to become involved in the BogotA river cleanup effort beyondsetting up standards for water quality in the river and acting as a regulating and policy making agency,even though it assumed the function of implementing agency for cleanup works in the upper basin of theBogota river.

(ii) Empresa de Acueducto y Alcantarillado de BogotA (EAAB)

2. EAAB, the Borrower and executing agency of the Santafe I project, is responsible for supplyingwater and providing adequate sewerage and storm drainage to the city of Bogota. According to its previousand new statutes it is also responsible for treatment of wastewater, but except for having conducted studies,it never materialized its responsibility regarding treatment and it has never constructed, owned or operatedwastewater treatment installations. It monitors the quality of industrial wastes discharged to the municipalsewerage network, mainly for the purpose of establishing discharge rates. During the administration of thecurrent Mayor, whose term of office ends in December 94, the administrative responsibility for treatmentof the wastewater of Bogota was transferred from EAAB to DAMA.

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(iii) Departamento Tecnico Administrativo del Medio Ambiente (DAMA)

3. The Bogota District Environmental Agency (DAMA) was established in 1990 by the BogotaDistrict Council. It is responsible for the city's enviromnental policy, planning and programming and thepreparation of BogotA's Environmental Management Plan, including regulation and control of urbanpollution (i.e., contamination of air, water, and land resources) and conservation of the natural environment.It is made up of technical and operations sub-directorates, headed by a director who reports to the mayor.DAMA is new and inexperienced, and, similarly to other District agencies, has suffered since itsestablishment (and will most probably continue to suffer) from political intervention and frequent changesof its Director and senior staff. DAMA's continuity is at risk at every mayoral election, when its seniorstaff are replaced and its charter and functions could be revoked. Its task has been, until now, to increaseenvironmental awareness among the industries and general citizenry of BogotA, not to execute projects, butit seems that its role is shifting to executing tasks. DAMA was evaluated by the Bank in connection withthe planning of the Bogota Urban Transport project, within which the Bank has designated some US$200,000 to technical assistance for DAMA. The District government has recently approved legislationadapting DAMA's objectives and structure to meet the requirements of Ley 99. Building the capacity totake on responsibilities which previously fell to the Corporaci6n Aut6noma Regional (CAR) will be amajor challenge for DAMA in the near future. The agency expects to increase fourfold its current staff ofaround 30 professionals and will require training for new and existing staff.

4. Recently, the administrative responsibility for treatment of the wastewater of Bogota wastransferred from EAAB to DAMA, who has been, for over a year, the District's arm for managing andimplementing the adopted strategy for the BogotA river pollution abatement. DAMA handled the biddingprocess for selection of a private operator which would build, under a BOT contract, a primary wastewatertreatment plant at Salitre. The Salitre contract has been recently signed with the French firm Degremont.DAMA does not have, at present, the capacity to handle a project of the size of BogotA wastewatertreatment project and it is doubtful that it is the best qualified and appropriate agency to be in charge ofimplementing this project, for reasons of incompatible mandates of an environmental regulator and animplementing agency.

5. DAMA has been the interlocutor of the wetlands protection component of the Santafe I project. Itparticipated in producing the terms of reference for the Bogota wetlands studies and signed an agreementwith the Universidad Javeriana according it the role of wetlands management for the next 15 years.

(iv) Empresa Distrital de Servicios (EDIS)

6. The city's solid waste department (EDIS) formerly manage three separate garbage collectionservices and operated Bogota's only sanitary land fill site and was responsible for controlling wastedumping into creeks and wetlands. EDIS continue to fulfill its functions until end 1994, by which datethese services were fully privatized.

(v) Empresa de Energia Electrica de Bogota (EEB)

7. The BogotA Electric Energy Company (EEB) is a public service utility providing thermal andhydro-electrical power to municipalities within the BogotA River drainage. The company has effectively

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- 55 -ANNEX 3

sequestered a considerable portion of the Bogota River below the capital by controlling water levels with adam and storage reservoir at Alicachin. Below the BogotA Savanna the river is piped through threesuccessive electrical power generating plants before being returned to its natural bed. As an interestedparty and one of the primary users of the river, coordination between EEB and other stakeholders isimportant in order to forestall and resolve potential inter-institutional conflicts over competing water usesand approaches to resolving technical issues.

(vi) The Ministry of the Environment

8. As part of the National Development Plan for 1991-94, the Government outlined a strategy toreinforce the strategic coherence of attempts to resolve environmental issues and the institutionalframework. Following on this strategy, the new Ministry of the Environment (ME), the National Councilof the Environment and Natural Resources and the National Environmental System (SINA) were created byLaw 99 in December, 1993. The role of the ME includes definition of policies and regulations formanagement of the environment and use of renewable natural resources, preparation, in coordination withDNP of environmental programs and plans, and coordination of sector research. The ME is alsoresponsible for the National Environmental Fund and supervises the work of five scientific institutions.The ME took over several environmental-related functions and activities previously scattered in variousinstitution such as: the Ministries of Agriculture, Health, Mining and Energy, INDERENA and DNP.Under Law 99 the "Corporaciones Autonomas Regionales" (CARs) would strengthen their current role ofpolicy implementation and increase in number from 18 to 30, to cover the whole national territory.Existing CARs have also been transformed into decentralized autonomous entities, independent of thecentral Government, reporting to the Departments, municipalities and other territorial entities under theirjurisdiction.

B. Protection of The Wetlands of the Capital District

9. The wetlands of the Sabana de Bogota are of special ecological importance. Much of the Sabana wasoriginally covered by wetlands and since there are no other comparable wetland areas in the high Andes north ofPeru, the Sabana was the focus of the evolution of a number of endemic (occurring nowhere else in the world)wetland species. For example, with at least 12 endemic species or sub-species of wetland birds, the Sabana deBogotA is the most important center of avian endemicity in the Northem Andes. Unfortunately, the Sabana deBogota has been one of the most intensely developed areas of Colombia and more than 94% of these valuablewetlands have been drained and filled in. Several of the endemic birds are already extinct and the others are allthreatened.

10. In addition to their importance for biodiversity, these wetlands have a critically important hydrologicalrole of flood protection and aquifer replenishment, and have a tremendous recreational potential. The mostimportant remaining wetlands are found outside of the Capital District, but some 15 wetlands exist within theDistrict.

11. The District wetlands are of particular importance to the integrity of the water supply and wastewaterdisposal functions of the EAAB. Because of links between the stormwater and wastewater disposal systems,many of the wetlands must absolutely be protected within BogotA. Recognizing their importance, EAAB and theBank have agreed that under the Santafe I Project, EAAB will provide significant support to the protection of the

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- 56-ANNEX 3

wetlands of the Capital District. This support will be mi the form of guaranteed provision of US$ 400,000 peryear during the duration of the Santafe I Project.

12. Within the Capital District, environmental issues are the responsibility of the DepartamentoAdministrativo del Medio Ambiente (DAMA). DAMA is not responsible for executing projects but has acoordinating flmction. By a recently approved Capital District resolution, all municipal entities must invest, underthe coordination of DAMA, 1.5% of their operating budgets in environmental programs. In the case of EAAB,this percentage represents an amount several times as high as the amount to be provided for wetlands. As such, itdoes not therefore represent the investment of new funds, but the explicit eannarking of this portion for wetlandsmanagement remains significant as there would not otherwise be a secure and continuous source of finds in thenear future for protection of the wetlands of Bogoti.

13. Recognizing its limited capacity, DAMA has recently signed a number of agreements with localuniversities and NGOs with the objective of assigning the responsibility for various environmental analyses andprotection plans to these organizations. In the case of responsibility for wetlands, DAMA has signed anagreement with the Universidad Javeriana according it the role of wetlands nanagement for the next 15 years.The Universidad Javeriana, through its Institute for Sustainable Development, will thus be responsible forcoordinating with other organizations all wetland protection efforts.

14. In order to ensure that the annual allocated funds for wetlands protection are spent in the most effectiveand efficient manner, the Santafe I Project includes a study to formulate wetlands management plans and todetermine funding priorities. Because ofthe Universidad Javeriana's pivotal role in this area, it will carry out thisstudy. In addition to help in better defining funding priorities, the study will represent an important trainingexercise for the University, requming mobilization of wetlands experts and extensive cooperation with DAMA,CAR, EAAB and with NGOs.

15. The cost of this study is estimated at about US$ 200,000 and its funding will be provided by EAABunder the Santafe I Project. Preparation of a work plan acceptable to the EAAB and to the Bank will be aprerequisite for funding the study. The study is expected to be carried out in 14 months and will allow adequatetime for the University to develop this expertise and links with other organizations. Provision has been made forfacilitating emergency investments and actions that are required in the course of the study.

C. Environmental Institutional Strengthening of EAAB

16. EAAB has had up until this time no formal unit or administrative entity specifically concerned withenvironrnental issues. The initiative to foster the creation of an environmental unit under the Santafe I Projectwould constitute an important step towards institutional strengthening of EAAB in order to incorporateenvironmental considerations into performance of its duties.

17. An agreement was reached with EAAB during project preparation that an Enviromnental Committeewould be created within the company. This was deemed more appropriate by representatives of the EAAB thanthe creation of another bureaucratic appendage when efforts are underway to streamline the company.

18. The Environmental Committee is to report directly to the Vice President for Planning and is to becomposed of two permanent; full-time members and a number of temporary members as required. The two

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ANNEX 3

permanent members, who would both dedicate 100% of their time to environmental issues, are to be: i) anenvironmental engineer from the Planning Vice Presidency (Secretary of the Conmiittee) and ii) an environmentalconsultant. EAAB has indicated that the environmental consultant is to be hired as a part of the external auditteam.

19. Temporary members of the Committee would include representatives of other areas of the company suchas Real Estate, Natural Resources, Community Development, etc. External members would include arepresentative from DAMA. In addition and as required, the Committee would engage specialized consultantscounting on logistic and financial support from the Planning Division.

20. One of the most unportant and immediate tasks of the Committee under the Santafe I Project would beto ensure the effective implementation of the Environmental Management Plan proposed in the project's EIA.Other activities for which the Committee would be responsible will include:- Fornulating an environmentl policy for EAAB;- Environmental training;- Coordination with other environmental agencies and NGOs;- Coordination of the wetlands protection component;- Public consultation.

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ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 4 Past Bank Experience in the Water & Sanitation Sector in Colombia

A. Record of Bank Supported Projects

1. Project completion reports have been prepared for six projects, and four others have hadPerformance Audits. " The audit reports and the supervision of on-going projects show that, in largemeasure, projects have been successful in achieving their physical objectives and, thus, have contributedimportantly to the development of the water supply and sewerage sector. Most beneficiaries of past Bankloans, however, did not attain the institutional and financial performance targets envisioned at appraisal.Other deficiencies detected in past experience have been the chronic overestimation of demand for waterand the frequent implementation delays, which, in an inflationary environment, resulted in cost overruns formost of the projects.

2. The operations with EAAB were more successful than with the other companies receiving Bankfinancing. The Bank contributed substantially to the development of EAAB into a relatively efficientinstitution. However, mainly because of inadequate tariff increases, lower than expected sales, and projectcost overruns, EAAB's financial performance declined during a major part of the second and third projectimplementation period - particularly during 1971-75 and 1980-82. To address this problem, an institutionalstrengthening program was included in the Fourth Bogota Water Supply and Sewerage Project (Loan2512-CO). The Action Plan supported under this project was not carried out in important areas related toefficiency and EAAB entered a major financial and institutional crisis in 1989-92 because of weakmanagement and controls, and a short-term focus created by the governance framework and lack ofaccountability. Intensive Bank supervision contributed to major remedial actions to address crucialaccounting deficiencies, control costs, and renew a focus on efficiency. In 1993, the Organic Law forBogotA was enacted to correct flaws deriving from the governance framework. By mutual agreement, imspite of delays in construction of the San Rafael dam financed by Ln.2512-CO, the closing date ofLn.2512-CO was not extended beyond June 30, 1993. Instead, alternative financing was secured, anddisbursements from the loan for goods and services supplied by the closing date were permitted untilDecember 31, 1993.

3. At present, the Bank is supporting sector investments through projects with the EmpresasMunicipales de Cucuta (Loan 2470-CO), as well as a multi-city lending operation through the new

/ Loan 738-CO, Palmira Water Supply Project: Report No.4589, June 1983; Loan 1523-CO, Second Cali Water Supply andSewerage Project: Report No. 5389, December 1984; Loan 536-CO, Bogota Water Supply Project: Report No. 2003,March 1978; Loan PU-30-CO, Cali Water Supply Project: Report No. 2638, August 1979; Loans 860-CO and 1072-CO,Medium-size Cities and Second Multi-City Water Supply and Sewerage Projects: Report No. 6594, January 1987; Loans741-Co and 1697-CO, Second Bogota Water Supply and Third Bogota Water Supply, Sewerage and Drainage project:Report No. 7231, May 1988; Loan 2637-CO, Baranquilla Water Supply and Sewerage Project: Report No. 12326,September 1993, Loan 2512-CO, Bogota IV Water Supply Project, June 1994.

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- 59-ANNEX 4

national financial intermediary for municipal development, FINDETER (Loan 2961-CO) for the financingof about 300 sub-projects in medium and small communities. FINDETER is responsible for theidentification, appraisal and supervision of these sub-projects. The experience to date on this project ispositive both in terms of the quality of the sub-projects and in terms of the institution-building benefits thathave been recorded. Project implementation is on schedule and FINDETER has been effective in reachingabout 500 municipalities with technical assistance and investment loans aimed at attaining efficient andself-sustaining operations

4. The Cucuta project has been problematic, mainly because of the politicization and weakmanagement of the project entity, leading to serious implementation problems and suspension of the loan in1991. Since then, intensive efforts have led to some remedial actions by the Cucuta authorities. InBarranquilla, the project with the EPM (Ln. 2637-CO) encountered the same types of problems, leading totransfer of the responsibility for water supply, sewerage and solid waste management to a new entity withminority private shareholding, and the cancellation of the Bank's loan because of massive non compliancewith loan conditions.

B. General National-Level Experience to Date

5. The main problems in the water and sewerage sector as gleaned from the record of the Bank-supported project portfolio can be summarized as follows:

* political interference in management of water and sewerage services;

* institutional weakness and instability are common among the more than 1,000 utility entitiesthat provide urban water and sewerage services;

* administrative and operational inefficiencies, including lack of trained personnel are alsowidely prevalent;

* service quality is poor in a wide range of institutions and municipalities;

* tariff adjustments have come mainly in the face of cash flow difficulties; there is also officialambivalence about the role of tariffs in the provision of efficient services to all income strata.as a consequence, the sector is characterized by vicious cycles of low cost recovery, lowinvestments, poor service, and poor maintenance that have sent many of the utilities into adownward financial spiral.

6. The major sectoral problems have had a detrimental effect on health and living conditions forsubstantial numbers of urban residents, particularly the urban poor. The recently completed PovertyAssessment Report (Report No. 126730-CO) of June 1994, has concluded the following from its review ofthe major issues confronting the water and sanitation sector in Colombia:

* Lack of access to water and sewerage is mostly a problem for the urban poor. At least 70% ofthe new water and sewerage connections needed to ensure the coverage enjoyed by the highestquintile of the population is required by the poorest 40% of Colombian households;

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* This lack of coverage does not reflect unwillingness to pay. In the main cities, urbanhouseholds in the lowest decile spend up to 9% of their income on water and sewerage, while thepopulation at large spends only between I to 2 percent;

* Illegal connections average 7% nationwide; in the lowest decile, they represent 10%; however,these mask a wide range of variations with some cities showing a level of illegal connections ashigh as 18%, with 43% of services to the lowest income decile being illegal in nature;

* Subsidies are better targeted in the water and sanitation sector than in the case of electricityservices; nevertheless, targeting is far from adequate; although water and sewerage servicecoverage is lower and more regressive than in the case of energy, the better design of the tariffstructure compensates for some of this regressive structure.

7. The Poverty Assessment Report has made a number of recommendations with regard to futureBank operations in the sector, including:

* need to improve information about the household stratification and their geographicaldistribution in order to design better targeted programs to expand service coverage in the sector;

* need to set relative goals for targeting in rural and urban areas, taking into account costs andbenefits of expanding coverage in urban areas that are nearing universal coverage, and insteadconcentrating on reducing UFW and improving quality in such areas.

* with regard to tariff structure, an urgent priority is the need to design and restructure tariffsystems that provide incentives to improved public awareness of the true cost of water andsewerage services and to targeting social subsidies in such a manner that they reach the poor;

- the current neglect of wastewater treatment raises serious environmental concerns, and pointsto the need for concerted action at all levels to deal with the health and economic welfare of allresidents, especially the poor, who live in marginal settlements along polluted waterways;

* greater use of community participation in the delivery of water and sewerage services is needto enhance sector efficiency and to better target those sections of the population that most requirebetter service coverage and improved service quality; greater use of the private sector in theprovision of services through subcontracting arrangements and through equity participation is to beactively encouraged .

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- 61 -ANNEX 5

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 5 EAAB Institutional Assessment And Performance Plan

A. General

1. EAAB is an autonomous municipal enterprise responsible for delivering drinking water, sewerage anddrainage services for the Capital Distnct of santa Fe de Bogota. Through various contractual arrangements,EAAB also serves six nearby satellite municipalities. Water service in Bogota originated 106 years ago as amunicipal dependency. EAAB was formally created in 1955 as a municipal decentralized company. Today,EAAB serves almost a million connections, which covers more than 90% of Bogota's population. Despite flaws,EAAB has, overall, a good reputation among its clients.

2. During the last decade, a steady deterioration led to an institutional and financial crisis, the result of lackof institutional autonomy and continuous weak management controls. In the past two years, however, EAABmianaged to turn this tendency around by achieving significant improvements in its performance and in itsinstitutional and financial capacity. This trend still continues supported by a new more favorable externalinstitutional context with greater autonomy, by a qualified management team with strategic vision and, also, bythe support of the National Government which has agreed to refinance EAAB's external debt in exchange forstructural reforms. This positive trend, however, requires continued support and further improvements are neededto consolidate systemic change and secure EAAB from rtning to past patterns. Also, there is room forefficiency gains and to provide better and more effective service to users.

3. During 1993 the administration of EAAB formulated, in collaboration with the National Government, astrategic development plan which focuses on the company's financial recovery, efficiency gains, modernization,and the introduction of a new managerial culture. The concrete objectives and institutional targets, are specified ina legally binding contract signed between EAAB and the National Government. The Santafe I project, through itstechnical assistance and institutional strengthening components, aims at supporting EAAB's key programs in itsdevelopment strategy, including: Unaccounted for Water (UFW) reduction and the development of ManagementInformation Systems (MIS). An assessment of the company is provided below.

B. Description of Organization, and Institutional Arrangements

1 . Type of Institution

4. EAAB is an Industrial and Commercial enterprise of the Capital District of Bogota. In response to aconstitutional mandate, EAAB's legal status was recently defined by Decree/Law 1421, of July 21, 1993, issuedby the National Government and known as the Organic Statute for santa Fe de Bogota. Through this new legalstatus EAAB acquired administrative, budgetary and contracting autonomy.2

2 Law 142/1994 better known as the Law of Public Services, further underscores this status by limiting the possible status of allwater companies to either stock societies or Industrial and Commercial enterprises.

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ANNEX 5

2. Institutional Context

5. Several institutions at the National and municipal level, as well as from the pnrvate sector arestakeholders in the current institutional context of EAAB. At the National level key institutions are the MinistryOf Finance, the National Planning Department (DNP), and the Ministry of Development through both theRegulatory Commission for Water and Sanitation, and the Water and Sanitation Directorate. The Ministry ofFinance and DNP approve EAAB's external borrowing programs. Also, the newly created Ministry ofEnvironment, acting directly and indirectly through CAR, the river basin authority, has responsibility foroversight on environmental issues. In the near future EAAB, like other public service utilities, will also be subjectto the oversight of a Superintendency for Public Services which is to be created in response to a constitutionalmandate.

6. At the municipal level, key institutions include: the City Council, the Mayor's office, CONFIS, a fiscaland budgetary policy municipal institution, the District Planning Office, and DAMA, the environmentalcoordination authority for Bogota. The Mayor of santa F6 de BogotA is elected for three-year periods; reelectionfor the subsequent period is not penmitted. The Mayor, as the head of the District, appoints EAAB's GeneralManager, chairs the company's board and appoints four of its six members (see paragraph 7.). The City Council,which has now only limited interaction with EAAB, approves major structural reforms, such as a change ofEAAB's legal status, and also its overall borrowing ceiling. Relationships with other Non Governmentalinstitutions include the company's Union, and the "Juntas de Administracion Local" (JALs), decentralizedcommunity organizations for local development and grass-roots representation. External control agenciescomprise a number of institutions including: the office of the District Comptroller for fiscal matters, and severalother control offices such as the "Personeria Distrital", and the "Procuraduria", "Fiscalia", "Defensoria" and"Veeduria" at the National level.

3. Board of Directors

7. A seven-member Board of Directors governs EAAB. Its members include: the city Mayor, who acts asthe chairman, four representatives from the Capital District, all appointed by the Mayor, a delegate of the socialorganizations3, (currently represented by the Director of ACODAL, the leading water sector association) and adelegate of residential customers of EAAB. Currently, EAAB's Board consists of well reputed and qualifiedmembers. The Board's functions concentrate on policy issues and strategic deliberations, and approval of EAAB'sglobal budget and borrowing

4. Management

8. EAAB's General Manager acts as the legal representative of EAAB. According to the Organic Statutefor BogotA, such position is fully responsible for the overall management of the company, including theappointment of all of EAAB's employees, and for all of its contracting. In contrast with the previous co-administration scheme, this arrangement has given EAAB a high degree of autonomy. The current General

3 This member will be a representative of one of the following: Chamber of commerce of Bogota, Federation ofMetallurgical Industries (Fedemetal), Association of the water sector (ACODAL), Association of cooperatives(ASCOOP) and federation of community associations of Bogota.

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Manager is a reputed professional. Second-level officials are also high qualified professionals. The level ofprofessionalism is high.

5. Organizational structure

9. In August, 1993 EAAB's General Manager adopted a new organizational structure. This reorganizationwas designed intemally, in the context of the broader modemization and development strategy for the company.The current organizational structure is client-oriented, seeks functional specialization among areas and favorsmodem strategic managerial functions. Major shifts from the previous organizational structure include: (i)strengthening of the Intemal Control and Information areas, (which now respond directly to the GeneralManager); (ii) the creation of new staff areas such as the Community Response Office and an Applied StudiesCenter; and (iii) redistribution of functions, with better defined responsibilities and better coordination ofpreviously dispersed procedures. This reorganization of EAAB also led to down-sizing from a previously heavybureaucratic structure by eliminating one managerial level (93 departments) and eliminating 26 third level units.

10. The current major organizational divisions reporting to the General Manager include: commercial,financial, planning, technical (responsible for construction), operations, and administrative. Staff areas directlyresponding to the General Manager include the Secretary General (responsible for procurement and legal issues),Intemal Audit (internal control), Unaccounted For Water, Community Affairs and a technical research center.Attachment 1 presents the organic structure of EAAB up to its third level.

C. EAAB's Performance Assessment

11. Overall, the assessment indicates that most of EAAB 's structural and performance problems have beenaddressed or are currently under improvement. These refer mainly to autonomy, accountability and efficiency ofthe company. Apart from the strong commitment to resolve these issues shown by EAAB during the preparationof Santafe I (through its strategic plan and following actions), these objectives have been strongly endorsed andunderpinned by both the National Govenmment through the PP and by the Bank through Santafe I project. Inshort, the new Superintendency of Public Services will also help control EAAB's performance. and achievementsDespite these improvements two issues are worth highlighting: EAAB's autonomy status, and as a directconsequence the recent high management turnover. A more detailed discussion of these two issues follow:

1. Autonomy

12. As mentioned, the Organic Law of the Capital District provided EAAB with autonomy in budgeting,contracting and staffing, thus setting the baseline for the National Govenmment to enter into the performanceagreement and for the Bank to consider the processing of Santafe I. EAAB's autonomy was further enhanced bythe Law 142, by: (i) stating that general managers can only be removed because of not compliance with theirfunctions, (ii) permitting all utilities to establish their own contractual procedures, and (iii) establishing aregulatory and control system, based on negotiated performance plans and, including external audits as inputs.However, there's room for further improvement in the company's autonomy. As an example, table I belowcompares some autonomy-related aspects between the current company and that of a mixed capital utility, whichis the type of institution envisaged in Law 142.

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ANNEX 5

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ . . .... .;: .; .sR .* : .*..... ..........

ISSUE EA" MIXED CAPITAL COMPANYPersonnel Public and official employees Private Regime.General manager Appointed by Mayor Appointed by the BoardBoard Mostly appointed by the Mayor According to company's statutes

(four of six members)Institutional Transformation Competence of City Council Competence of EAAB's boardDebt authorization Competence of City Council Competence of EAAB's boardControl Mechanisms Oversight responsibility of Oversight responsibility of municipal

Municipal Comptroller Comptroller only for use of publicfunds

2. Management Turnover

13. High turnover of EAAB's General Manager, and the negative consequences on the company'sperformance, is still a pending problem. During the previous mayor's mandate (a 2V/2 years transitionperiod to 3 years for the present and following mayors) he appointed three managers for EAAB. All ofthese General Managers, in turn, filled most of the company's second-level positions with new-comers and,sometimes, inexperienced managers. While Law 142 states that managers in utilities can only be removedfor unsatisfactory performance, it doesn't fully prevent the above mentioned tendency to continue.

14. To overcome these and other autonomy and efficiency related issues The National Government, EAABand the Bank share the appreciation that EAAB has to explore new institutional options for providing the waterand sewerage services. These options would include the participation of the private sector in various possibleways and scopes. For this, Santafe I project supports the elaboration of a comprehensive study of institutionalalternatives for EAAB and provides funds to apply the results of such study after the necessary consensus on theway to go are reached (see para. ).

15. Table 2, below, describes EAAB's performance including: i) key issues or past and current problems; ii)current achievements by EAAB at appraisal; and iii) the expected improvements with the support of the SantafEI project.

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TABLE 2

EAAB INSTITUTIONAL ASSESSMENT AND PROJECT RELEVANT SUPPORT

General lack of accountability explained by weak A new corporate culture oriented at accountability Starting with the financial and commercial units asmianagemeni control, processes and responsibilities not is being introduced. All procedures are being priority areas, EAAB will finish and formalize byclearly defined, inadequate informnation systemis, lack of reviewed and responsibilities better internal decree all procedures and job

ACCOUNTABILITY intemal control. defined/established. Intemal control unit already responsibilities. Internal Control Unit will controlestablished. effectiveness of procedures. SANTAFE I willEAAB has initiated the review of all processes. provide assistance to upgrade all EAAB informationFirst results are promising: a new transparent systems.process for EAAB's contracting and water serviceconnection time reduced fromn 60 to 5 days.

CORPORATE STRATEGY Lack of a corporate strategic plan. EAAB's managerial team has already elaborated a This process is at early stage. SANTAFE I includes astrategic vision for the company. Its role includes substantial action program to support consolidationwater and sewerage distribution, while water of strategic vision. This program includes the 0production and treatment could be alternatively establishment of a twinning or technical assistancemanaged by EAAB or a new mixed capital arrangement, with a developed company reputed forcompany. EAAB's vision also includes a new excellence..more managerial corporate culture, emphasis on . .total quality, in processes and in human resources. (review i Bogota: Revisions to this strategy areInformatics and technology modernization is also expected in lieu of i) data from 1993 census imposesbeing developed and implemented. new corporate goas and strategies and ii) EAAB hasbeing deveoped and iplemented.proposed the creation of a miixed capital company to

deal with new production expansions and managingsupply contracts with neighbor municipalities)

MIS AND CONTROLS Information Systems Current Management No major improvements in MIS have been made. Santafe I will provide support for the development offnfonation Systems(IS oudtd w aHowever, a strategic design for the role of MIS in a coherent and comnprehensive Managementinfonnation systems, (comumercial and financial) EAAB's development process is now well defined. Information System. It will also support a G.I.S.outdated, incomplete, inconsistent and output gets short package for long-term planning, investmentanalysis and not used to support managerial decisions. mrogrtoring. and operational and commeraal

m tn

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MIS AND CONTROLS (CONT.) System Support & Informatucs Informaties is now a second-level division which Santafe I will provide support to upgrade andresponds to the General Manager. EAAB intends consolidate inforiatics systems and processes. theto rapidly upgrade the informatics area by action plan includes the provision of. (i) an integratedInfornation processing, software and hardware lag providing it with modern tools and more computer network; (ii) a standardized software

behind present information developments and EAAB's automated processes. A set of nearly 500 platform (Windows); iii) specialized softwareneeds, and represent a burden on EAAB's modernization microcomputers and related hardware has already (project management, legal database, statisticalplans. been acquired by EAAB to replace existing quality control and others); (iv) new hardware

equipment. equipment; (v) provision of internal electronic mailand; (vi) process systematization. Under SANTAFE Ia medium-tern systemns study will be carried outwithin the context of EAABs integrated strategicapproach noted earlier.

MIS AND CONTROLS InenlC nrlLc faeut nai Created recently in EAAB, the Unit for Intemnal The consolidation of this area is expected soon. In(CONT.) Internal Control L ck of adequate internal Control is ins consolidation process. It is actively addition to its internal firnancial auditing of EAAB,.control. Lack of adequate auditing procedures for participating in the adjustment of EAAB's its functions are envisaged in an integrated controlsystems. processes which it will soon begin to control. This context, including objectives, processes and

unit reports directly to the General Manager of performance follow-up. By end 1994 it is expectedEAAB. that EAAB will contract systems audit (Note: and 0O

ICU strengthening) with an external fum iTOTAL QUALITY Absenee of corporate culture in EAAB. EAAB has established a Total Quality Program SANTAFE I will support the Total Quality action

PROGRAM with oversight at an advisory level reporting to the plan for the next five years. This program aims at aGeneral Manager. Some first steps have been further shift in the organizational culture of EAABtaken in helping define EAAB's corporate strategy towards accountability. A re-engineering of alland a sensitization and education program for EAAB's processes is currently underway and will beEAABs personnel. finished by end-1994.

Heavy bureaucratic organic structure (5 managerial Short term consolidation of new structure.levels) with dispersed procedures and responsibilities. Assignment of precise functions to all areas.

ORGANIC STRUCTURAL Strategic areas such as informatics located as third level SANTAFE I will foster strengthening of the planningREFORM dependencies: Inadequate focus on economie, area to incorporate economic, financial and

environmental, community and longer-term financial environmental analysis.issues.

. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I,

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PLANNING Planning focus on physical (system expansions) aspects EAAB recently created a Corporate Planning area, Under SANTAFE 1, the Planning Area would berather than integral approach. Institutional, financial and responsible for integrating financial and further reinforced by incorporating specialists ineconomic weaknesses in planning exercise. institutional aspects. This area has also the environmental, economic and financial analysis.

mandate of implementing and supporting EAAB'sstrategic plan activities and to follow up progressof corporate indicators for managerial decisions.

PERSONNEL & Strffing: Staff appointment processes hampered by non- EAABs General Manager, now autonomous for EAAB plans to continue with this process to decreasePERSONNEL MtANAGEMENT technical external factors. Staffing tendency to increase the appointment of personnel, formally declared a total staff number to 2700 by June 1994 and keep itpermanently. Iiigh personnel costs, as compared with hiring freeze and established a transparent process constant thereafter. Labor costs should also decline

similar private sector companies, especially because of of competitive selection, encouraging systematic because of the increase in subcontracting with thenon-wage benefits (300% of basic salary). Chart I matching of internal personnel to staff vacancies. private sector.figure 2 shows personne/operating cost as compared Current ratio of employees per 1000 water Personnel/M3 costs are expected to drop from 60 inwith other cities. connections now borders a low 3. 1993 to 43 by year 2000.

Training: A long-time established routine, which New organizational culture being introduced In coherence with the objectives for institutionalfocused on the basic-level personnel of EAAB. No real promotes training as a key success factor. Training strengthening of EAAB, SANTAFE I will providecoordination between training and the overall strategic strategy now focuses on in-job training, updating financial support to a training program, which amanagerial vision and performance plan. personnel knowledge and abilities in accordance includes the upgrading of EAAB's capacity to

with EAAB's modernization trends and upgrading provide an in-house staff training.managerial and staff training within the TotalQuality program.

SUBCONTRACTING Limited to few functions including the reading of Current policy in EAAB emphasizes the expansion Some other activities follow in the list for sub-OPERATIONS meters, maintenance and cutting off connections/re- of this practice. New areas subcontracted include contracting with the private sector, includingconnections vehicle maintenance and repair and provision of inventory control and provision of office supplies and

spare parts. the billing process for large consumers. UnderSANTAFE I two concession processes, therehabilitation and operation of Tibito water treatmentplant and the construction of Usaquen tunnel will befollowed-up, and long-term pipeline installation andmaintenance contracts will be given out.

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UNACCOUNTED High UFW (40% in 1993) as result of steady increase EAAB is placing big emphasis on UFW reduction. SANTAFE I sets a target of the UFW index of 19%FOR from a level of 25% in 1975. Comprehensive study and Major actions include: a) the creation of a for 1999. An action plan, including metering, pipe

WAT ER plan prepared under Bogota IV not implemented. permanent unit responding to the general manager; replacement, clandestine detection etc. in all 33b) the issue of a comprehensive action plan based defined zones should take place. SANTAFE Ion the Bogota IV project study and; c) pilot supports thoroughly this program. (see Chart 1,actions in four (out of 33) sections in Bogota. figures 2 and 3).Estimates for the end of 1993 indicate that theupward tendency has been reversed.

RELATIONSHIPS WITH Inadequate relationships between EAAB and low EAAB established a unit and developed a new EAABs Community Relations Unit will consolidateCOMMUNITIES & CLIENTS income communities (initiatives of communities with monitoring system to address all low-income and develop instruments and procedures before 1995.

problems rather than incorporation with EAAB), result community affairs. This Unit is to play an active Santafe I will provide funds to carry out aof political interference and weak management by the role promoting commnunity organization, sanitary comprehensive study and develop a strategy forcompany. education, environmental care, all within the community relations and the correspondingLack of information to clients on EAABs goals and context of a client-oriented culture. instruments. EAAB will provide periodic reports toperformance. clients on all key aspects of its performiance.

SERVICES TO EAAB serves six nearby municipalities. Relationships EAAB began an aggressive collection of due bills In a short time three more municipalities will receiveOTHER MUNICIPALITIES governed so far by ad-hoc contracts which involve which reduced accrues dramatically. Tariffs were services from EAAB. The company is establishing a as

subsidies and ur.covered risks of non-payment. High also raised to better reflect supply costs. A new coordinated policy (temis of service, tariffs) for 00receivables from most municipalities. coordinated strategy for service has been designed. serving neighbor municipalities including mechanism a

to cover from risks.

The proposed mixed-capital company noted earlierwould welcome all neighbor municipalities asstockholder.

OPERATIONS & Existing facilities well operated by competent staff. Under an on-going loan roin the Japanese The project will contribute to overcome currentMAINTENANCE Service operated 24 hours a day with rare interruptions. government EAAB is replacing its old operating maintenance lag and promote a more lasting strategy

Operating devices outdated and manual. devices by automated control systems and remote by: a) inclusion in the program of severalFair maintenance in treatment plants and pumps. sensing. rehabilitation works and, b) ensuring that adequateEmphasis on corrective maintenance, rather than a funding for maintenance will be provided in EAAB'spreventive strategy in both water and sewerage Some actions related to rehabilitation and a budget.networks. Low expenditure on maintenance. Pipe program for local network recovery is currentlybreakage/KM/year high as compared with other underway. The UFW program also emphasizescountries. (see Chart I figure 1). pipe rehabilitation.

..~~~~~~~~~~~~~~~~~~~~~~~~~~~'

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COMMERCIAL Conunercial Information System (CIS) Initially EAAB has placed strong emphasis on upgrading EAAB plans to modemize its commercial area and inOPERATIONS designed and established under Bogota IV, but already the commercial information system. A revision particular the Commercial Information System. In

inadequate because of weak maintenance. Lack of and updating process for the customer file is addition to its effolrts in updating the customer file,proper system safeguards. Customer.file outdated. underway, correcting inconsistencies and new computer equipment, the systematization of allClandestine connections estimated at more than 10% of incorporating 40000 new connections in 1993. coinmercial processes, the creation ofsafeguards andtotal connections. (note: check in Bogota) integration within the MIS. SANTAFE I supports

Billing and collections Highly vulnerable systems A comprehensive action plan to remedy mentioned Santafe I to support the action plan to upgrade billingbecause of inadequate hardware and inefficient flaws in place. first step actions taken include and collection. lhis includes review of currentprocesses. Inadequate collections (70 % of billing in special billing to large consumers (monthly), processes, hardware, systems development, meter1993). Long collections period (120? days) exceeds autoniatic audit for billing, and provision of reading by portable terminals, bar-code reading

equipment. devices, training.

COMMERCIAL Customer attention Claims/billing ratio, (over 3%), New client-oriented attitude in place. Creation of Claim/Billing ratio to fall gradually to less thani 1%OPERATIONS compares unfavorably with well managed utilities. Division to serve large consumers (including by 1997. Response to claims in less than 15 days by

(CONT.) Claims attention takes from 1-6 months. No special neighboring and municipalities and private end 1994. Santafe I supports proposed actions totreatment for large consumers in place. developers). Half of 15000 claims due in June consolidate client attention including equipment,

1993 have been anended, and rest will be atended training and launching studies to serve largeby end 1994. consumers.

A customer oriented action plan has been agreedupon with the advice of the Colombian NationalAttorney Office.

Financial Informnation System Financial Information EAAB has worked on defining conceptual design Santafe I will support the development of theSystem outdated and used only for producing financial of an integrated Financial Information System, Financial Information System, as an integral

FINANCIAL statements. No linkage between accounting, budgeting within the context ofthe MIS. component of MIS.MANAGEMENT and treasury. No linkage with commercial information

system. Non- standardized data input. No aggregateanalysis performed.

tI

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Accounting Oriented to production of financial Continuous depuration of accounting undergone EAAB to: consolidate cost accounting systemstatements and not as an analytical tool. Extemal audits in the past two years has reduced extemal audits (planned to be operational by mid 1994), update thenoted inadequacies. No cost accounting system. observations dramatically (from in to in). A first value of its assets and automatize accounting fully.

version of a cost accounting system now in place. Accounting will be used as base for financialprojections and Financial Information System.

EAAB will establish a pension fund. (NOTE explainfurther).

OBudgeting Central budgeting exercise with few Program budgeting now in place since 1993 Expected improvements in budgeting techniques suchconnections with operating areas. Financial projections exercise. Budget control system now operational. as direct involvement of all managerial areas and fullbased on budget numbers. automatization of preparation of budget and its

control. Clear linkage between treasury, budget, andaccounting.

. 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~iI

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COLOMBIASANTAFE I WATER SUPPLY AND SEWERAGE REHABILITATION PROJECT

EAAB - EMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA

EAAB ORGANIZATIONAL CHART

Board of Directors

Gra Manager

Public Relations Information Systems Manager Assistant Internal Audit Research Center Community Unaccounted forg Office # # Department Affairs Unit Water Reducting

Unit

| Procurement Departinent r

I | 1 ~~~~~~Secretary General

| Lgal Departinent

Planning Financial Administrative Technical Vicepresidency of CommercialViceprcsidency Vicepresidency Vicepresidency Vicepresidency Operations Vicepresidency

Water & Sewerage Treasury - Organizaional | Projets programing Automation and ControlPlaning Development Coordination Unit untBligUt

4 Corporate planning | _ | Accounting l H General Services U Development Unit Water Treatment Unit Customer Service Unit

Economic Operations Real Estate Acquisition Construction WatpDistribution Special Customers Unit[ and Administration Supervision Unit

Supply Human Resources San Rafael Dam ElectomechanicalDivision Construction Uniti Maiiienance

Medical Servics |Water DistributionMaintenance

Sewerage Maintenance

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- 72 -ANNEX 6

[ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 6 Private Sector Participation Program

A. Background

1. As part of its modernization program Colombia has involved private sector participation in manyof its public-owned enterprises. Ports, roads and railways are the most important recent examples. Inregard to the water sector, in the recent past some examples in midsize cities have taken place with differentforms of private sector participation. These cases range from intensive use of subcontracting to sharingownership of utilities with the private sector (mixed-capital shareholding companies). The newly approvedLaw of Public Services (Law 142) strongly underpins this option by promoting the share holding form ofadministration for water utilities and by introducing better regulatory framework and removing barriers forprivate sector participation.

2. Private sector participation in EAAB is not a new idea. Since the 1970's EAAB begansubcontracting some of its operations, including meter reading, all major expansion studies and somemaintenance. Today, after a recent expanding of this practice, EAAB has extended its subcontracting toencompass also cafeteria and restaurant services, new connections, transport service and bill distribution,to name a few. Currently, EAAB decided to contract out to a private firm the commercial operations (meterreading, billing and collection) of all large customers ( with consumption of over 350 m3/month).

3. These subcontracting practices have proven valuable in terms of being efficient and low cost,compared with EAAB's high internal cost, explained mainly by high personnel non-wage benefits and, incertain areas, low productivity. This practice has also given EAAB experience on how to regulate andadminister contracts with private firms. Despite these efforts, EAAB still remains by and large a publicutility with all its assets owned by the Capital District and the vast majority of its operational cost (88%)administered in-house. As part of its corporate plan, EAAB has coincided with the Capital District and theNational Government in the need to further increase and develop new ways of private sector participation.

B. Reasons for Increasing Private Sector Participation

4. The need to expand private sector involvement in EAAB stems from three main reasons:

(i) despite recent achievements through enacting new statutes for EAAB and the Law of publicservices, and consequent limits on political interference in day-to-day operations, the scope for managementeffectiveness is still restricted compared to what would prevail in the private sector. In particular, thedegree of management autonomy in such matters as personnel decisions, procurement and contracting,long-term financial planning and corporate strategy, are limited by the inherent nature of the public entity.In the medium term, transition to a corporate form with equity participation of the private sector will be theonly way of ensuring sufficient autonomy of management action and accountability to ensure enhancedefficiency and effectiveness.

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- 73 -ANNEX 6

(ii) significant capital investments will be needed in the near future for the development of newwater supply sources and for wastewater treatment, estimated at US$ 1 billion and US$ 1.5 billionrespectively. Funds for such investments could be raised only with some form of private sectorparticipation; and

(iii) there is room for efficiency improvement in EAAB which may be achieved by tackling theproblems of overstaffing, unduly high non-wage benefits and low productivity.

C. Private sector participation program

5. The increase in private sector participation will be achieved in several stages: In the inmiediate-tenn, the efforts would focus on extending the contracting-out practice. This would comprise furthercontracting out of operational functions, including a contract for providing new domestic meters andmaintaining all of Bogota's meters. Other contracts will include extensive maintenance of water andsewerage pipes (both preventive and corrective), maintenance of canals, vehicle maintenance and repair,separation of the network into operating sectors, and repairs in water treatment plants. All of thesesubcontracts will become operational before the end of 1995. In addition, EAAB plans to assess thefeasibility of entering into a concession agreement with the private sector which would carry out therefurbishment and subsequently the operation (similar to BOT but with rehabilitation instead of building)of the Tibito water treatment plant, and the feasibility of a concession for the construction and operation ofthe Usaquen backup tunnel and power generating facility.

6. In the long term, the strategy focuses on considering alternatives for EAAB's corporaterestructuring including substantial divesting of the capital District's ownership, aimed at ensuringmanagerial autonomy and accountability, reducing political intervention and interference and enhancingoperational efficiency in delivery of services by allowing greater participation of the private sector in themanagement and operation of EAAB and in provision of the water and sewerage in Bogota, and addressingthe requirements for large investments in development of new water supply sources for Bogota and inproviding wastewater treatment, within a broader urban development strategy. BOT contracts seem to be apromising method for attracting private sector investments to developing of new water supply sources forBogota and for expanding the existing ones, as well as for financing Bogota's wastewater treatmentfacilities. If the BOT option would be adopted, unbundling of the company's functions of water production,water distribution and wastewater treatment might take place and the separation of EAAB into two or threedifferent companies would have to be considered.

7. In order to explore the opportunities for private sector participation and prepare the adjustmentprocess, EAAB will embark upon a study which would analyze different alternatives and recommend themost adequate avenue, which would be implemented in the framework of Santafe I project, if approved byall the stakeholders.

8. A steering committee, including EAAB, the Capital District and representatives of the NationalGovernment will administer the restructuring process. The proposed institutional adjustment and privatesector participation study would be carried out in two phases. The first one will lay out and analyze allmeaningful alternatives. This analysis would be done vis-a-vis the objectives set out for the privatizationprocess, aimed at ensuring autonomy, capital needs, efficiency gains and public acceptance. The results of

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ANNEX 6

this analysis would be presented to the steering committee which would select the most adequate alternativefor EAAB's transformation. The study would outline an action plan for implementing the structuraladjustment. If the recommendations of the study would be acceptable to the Colombian and CapitalDistrict authorities and to the Bank, the second phase would then be carried out, focusing on the detaileddesign of the transformation process and on formulating a detailed action plan for its implementation,including preparation of bidding operations, if warranted, followed by implementation of thetransformation process.

9. The deadline for initiating the study is January 1996. The selection of EAAB's institutionalrestructuring alternative should be taken by January 1997. If decided to proceed with the process, thedetailed designs and transformation would depend on the alternative chosen and on the need to prepare andimplement bidding operations as part of it.

10. The Santafe I project will support EAAB's enhancement of private sector participation. Most ofthe measures mentioned would be supported by Bank funds, along with close follow-up and advise, ifneeded. The progress in EAAB's privatization process would be monitored continuously. During the mid-term review, decisions would be taken in regard to required continuing technical assistance or change ofstrategy, if warranted.

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ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 7 Detailed Project Description

1. The proposed project, which would be carried out during an eight year period, between mid-1994 andmid-2002, includes eight main components. The following is a description of the items included in the project:

A. Vulnerability Control

1 . Rehabilitation of a section of 31 kIn, between km 4 (counted from the Tibito treatment plant)and Street No. 80, of the 2 m diameter Tibito-Casablanca pipeline which is one of the two pipesthat conveys treated water from the Tibito treatment plant to the city (Phase 1);

2. Rehabilitation of the Tibito water treatment plant, which presently treats, on a continuous basis,a flow of only 3.5 m3/s, so as to restore its capacity to treat the nominal flow of 11 m3/s (Phase1);

3 . Construction of the alternate Usaquen tunnel of about 2.7 km length and 3.5 m diameter, whichwill serve as a backup system to convey the treated water of the Wiesner treatment plant to theSanta Ana Reservoir, in case of filure of the main Usaquen tunnel (Phase 2).

B. Primary Sanitary and Storm Drainage Sewerage and Pollution Control

1. Construction of the first stage of the Bogota River Interceptor, the Torca-Salitre stretch of about12.5 km length, constructed of pipes with diameters varying between 1.8 m and 2.15 m, astretch of Box Culvert with a cross section of 2.5mX3.Om and a section of a tunnel, 375 m long,with a 3 m diameter (Phase 1);

2a. Construction of about 35 km of sewage interceptors, trunk sewers and storrn water drainagesystems, constructed of pipes with diameters varying between 0.3 m and 2 m and of BoxCulverts with cross sections varying between 1.8mX2.6m and 1.8mX4.0m, as well as about 17km of drainage canals in the Salitre, Jaboque, Tintal and Tunjuelo drainage basins, in Phase 1;

2b. Construction of about 27 km of sewage interceptors, trunk sewers and storm water drainagesystems, constructed of pipes with diameters varying between 0.3 m and 2 m and of BoxCulverts with cross sections varying between 1.8mX2.6m and 1.8mX4.0m, as well as about 12km of drainage canals in the Torca, Fucha and Tintal drainage basins, in Phase 2;

3a. Construction of 2 main sewage pumping stations (Gibraltar and Salitre) and expansion of 2smaller sewage pumping stations (Vila Gladis and Fontibon) in the Tintal and Salitre drainagebasins, in Phase 1;

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3b. Construction of 1 main sewage pumping station (Torca) in the Torca drainage basin, in Phase2;

4a. Construction of 1 storm water peak attenuation lagoon (Canal Tintal of 3 million in3), in Phase1 ;

4b. Construction of 1 storm water peak attenuation lagoon (Fontibon lagoon of 0.73 million in3 ), inPhase 2;

5. Rehabilitation of dikes on the left bank of the Bogota River, in front of Bogota City at Fontibonand Tintal, with a total length of about 1 I km and an average height of I m, in Phase 1.

C. Primary Water Distribution System

la. Installation of about 54 km of primary distribution mains (of diameters varying between 300and 1500 nmm), in Phase 1;

lb. Installation of about 56 km of primary distribution mains (of diameters varying between 300and 1500 mm), im Phase 2;

2a. Construction of 4 storage tanks in the southwestem sector of the city (Jalisco, Volador, Casilloand Quiba) with a combined capacity of 10,800 i 3, all in Phase 1;

2b. Construction of 3 storage and compensation reservoirs: Suba (90,000 m3), Suba Medio Sur(2,000 m3 ) and Suba Medio Norte (2,000 m3), as well as rehabilitating and increasing thevolume of 6 storage tanks in the northeastern sector of the city (Santana Nuevo, Paniuelito,Bosque Medina, Bosque de Pinos, Soratama and Santa Cecilia Cerro Norte) with a combinedcapacity of 3,400 m3, all in Phase 2;

3a. Construction of 2 pumping stations in the southeastem and southwestem sectors of the city(Volador and Monteblanco Uval), in Phase 1;

3b. Expansion of 3 pumping stations (Bombeos Nororientales) in the northwestem sector ofBogota, in Phase 2.

D. Secondary Water, Sewerage and Drainage Networks and Service Connections

la. Construction of about 125 km of secondary and minor water distribution mains, of diametersbetween 75 mm and 300 mm, in low-income neighborhoods, in Phase 1;

lb. Construction of about 225 km of secondary and minor water distribution mains, of diametersbetween 75 mm and 300 mm, in low-income neighborhoods, in Phase 2;

2a. Construction of about 265 km of secondary sewage collectors, of diameters between 200 mmand 400 mm, in low-income neighborhoods, in Phase 1;

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2b. Construction of about 270 km of secondary sewage collectors, of diameters between 200 mmand 400 mm, in low-income neighborhoods, in Phase 2;

3a. Construction of about 225 km of storm water drains, of diameters between 250 mm and 1500mm, in low income neighborhoods, in Phase 1;

3b. Construction of about 545 km of storm water drains, of diameters between 250 mm and 1500mm, in low income neighborhoods, in Phase 2;

4a. Installation of about 70,000 water service connections and of about 100,000 sewerage serviceconnections in low-income neighborhoods, in Phase I

4b. Installation of about 110,000 water service connections and of about 100,000 sewerage serviceconnections in low-income neighborhoods, in Phase 2.

E. Rehabilitation Works

la. Sewerage System: replacement or repair of about 19 km of sewage collectors, construction ofalleviation sewers, structural rehabilitation of canals, interceptors, flow equalization reservoirsand other sewer appurtenances as well as identification and repair of erroneous connectionsbetween sewage and storm water collectors, in Phase 1;

lb. Sewerage System: replacement or repair of about 28 km of sewage collectors, construction ofalleviation sewers, structural rehabilitation of canals, interceptors, flow equalization reservoirsand other sewer appurtenances as well as identification and repair of erroneous connectionsbetween sewage and storm water collectors, in Phase 2;

2a. Water Supply System: replacement or rehabilitation of about 150 km of older distribution pipes,of diameters between 75 mm and 150 mm, in Phase 1;

2b. Water Supply System: replacement or rehabilitation of about 150 km of older distribution pipes,of diameters between 75 mm and 150 mm, in Phase 2.

F. Institutional Strengthening of EAAB

1. Implementation of the Unaccounted For Water (UFW) reduction program including: (a)reduction of technical losses in bulk and domestic meters; (b) legalization or disconnection ofillicit connections; (c) reduction of physical losses through leak detection and repair and throughrehabilitation and replacement of old pipes; (d) implementation of a program for dividing thewater network into sectors; (e) evaluation and verification of consumption of great consumers;(f) installation of bulk meters in apartment buildings; and (g) purchase and installation of about780,000 domestic meters in low-income neighborhoods, all in Phase 1;

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2. Development and execution of a water conservation program aimed at formulating guidelinesfor water demand management as follows: (a) execution of pilot projects, under terms ofreference satisfactory to the Bank, with a demonstration purpose designed to realize the water-saving potential of the activities and measures included in the mentioned pilot projects, whichwould include the analysis of industrial water consumption and measures geared to increaseefficiency of domestic and industrial water use; (b) assessment of the findings andrecommendations resulting from the pilot project's execution and deternination by agreement,between the Bank and the Borrower, of future testing and research activities required, if any,and measures for demand reduction, if warranted; (c) carrying out, if so deternined, of thementioned future activities under terms of reference satisfactory to the Bank, and (d)formulation and publication of the aforementioned guidelines, all in Phase 1;

Development and implementation of a training program aimed at improving the performancelevel of EAAB employees, strengthening of training capacity within the company andimplementation of the Total Quality Management (TQM) program, in Phase 1;

4. Purchase of laboratory equipment for water quality control, hydrology and flow measurementinstruments and radio communication equipment, in Phase 1;

5. Formulation of a strategy for development of management information systems and redesign offinancial information systems, and Purchase of computer hardware and software systems fordata processing in a fashion consistent with the strategy formulated, in Phase 1;

6. Establishment and maintenance of the Environmental Protection Committee of EAAB,composed of two permanent full time members, an environmental engineer and a consultant,and a number of temporary members as required, responsible for coordinating theimplementation of the environmental component of the project and for development of EAAB'scapacity to perform environmental analyses, in Phase 1.

G. Technical Assistance and Consulting Services for Engineering, Design and Supervision of Works

la. Completion of all detailed engineering, including preparation of final designs and of biddingdocuments for all civil works included in parts Al, A2, B2a, B3a, B4a, B5, C I a, C2a, C3a,Dla, D2a, D3a, D4a, Ela, E2a of the project and mitigation measures under part Hl of theproject, all in Phase 1;

lb. Completion of all detailed engineering, including preparation of final designs and of biddingdocuments for all civil works included in parts A3, Bi, B2b, B3b, B4b, CIb, C2b, C3b, DIb,D2b, D3b, D4b, Elb, E2b of the project, all in Phase 2;

2a. Supervision of all works referred to in part Gla of the project, all in Phase 1;

2b. Supervision of all works included in parts Glb of the project, all in Phase 2;

3. Execution of the following studies, through utilization of consulting and advisory services:

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(a) (i) analysis of alternatives available to the Borrower for its institutional restructuring aimed atensuring managerial autonomy and accountability, reducing political interference andenhancing operational efficiency in delivery of services, including possible adjustment ofits corporate structure and or changes in its ownership, so as to allow greater participationof the private sector in the management and operation of EAAB and in the provision ofwater and sewerage services; and address the requirements for large investments indevelopment of new water supply sources for Bogota and in providing wastewatertreatment, within a broader urban development strategy; and (ii) development of a plan ofaction based on the findings and recommendations of (i) above, in Phase 1;

(b) preparation of a plan for: (i) alternatives for viable participation of the private sector in therehabilitation of the Tibito water treatment plant and the Alternative Usaquen Tunnel (parts A2and A3 of the project), including preparation of bidding documents, draft contracts and otherinstruments required to achieve such participation; and (ii) development of EAAB's capacity toregulate and monitor the private sector's aforementioned participation, if and when itmaterializes, in Phase 1;

(c) development of (i) a Management Information System (MIS) with emphasis on the financial,commercial and operational areas; (ii) a commercial plan aimed at safeguarding cash flow andimproving service; and (iii) a strategic planning capacity and an adequate strategic program, allby utilizing the advisory services of a high performing foreign water utility under a twinningcontract satisfactory to the Bank, in Phase 1;

(d) analysis of rate structures and levels related to cost of performing the services and, on the basisof the finding and recommendations of the study, development of a new tariff structure, in Phase1;

(e) development of adequate schemes for community participation in water and sanitationinvestmnents in a cost effective form, in Phase 1;

(f) development of the Geographical Information System (GIS) , in Phase 1;

(g) update of the existing master plan for development of the priniary water distribution network, inPhase 1;

(h) preparation of a water resources master plan study aimed at defining a program fordevelopment of the water supply sources and production capacity required to satisfy the demandin the short and long terms, and the design of the first stage works, in Phase 1;

(i) preparation of designs for rehabilitation works of the existing sewerage system, other than thoseto be carried out under the project, in Phase 1;

(j) preparation of the master plan for the sanitary sewerage system in the Borrower's jurisdiction,in Phase 2;

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(k) Preparation of complementary engineering, environmental, institutional and cost recoveryanalysis of the project for hydraulic rehabilitatioroftb-BogotA river and its tributaries withinthe Capital District limits, aimed at improving flood protection in the Bogota area, in Phase 2;and

(1) design of flood control management systems in the Tunjuelo basin, in Phase I.

H. Environmental Component

1. Implementation of mitigation measures aimed at mmunuzing adverse environmental impactduring the execution of the different works and other activities related to the carrying out ofparts A through E of the project, as recommended in the Environmental Assessment report ofthe Santafe I project, all in Phase l;

2. Implernentation of a program for resettlement of 3 11 persons, each to be displaced as a result ofcanying out of the project and to be provided with a new home or adequate compensation orboth, consisting of 3 subprograms, as follows: (a) resettlement of 7 persons in the intersection ofcanal Salitre and Carrera 91, under part B2 of the project; (b) resettlement of 184 persons in theJalisco water tank site, under part C2 of the project; and (c) resettlement of 120 persons in theVolador water tank site, under part C2 of the project, all in Phase 1;

3. Carrying out of a prograrn of activities aimed at wetlands protection in the Bogota area, dividedin several discrete annual programs, as follows: (a) execution of the first annual program; (b)execution of a study which will enable DAMA to elaborate and refine its priorities on wetlandprotection and to complete the design ofthe annual activities to be carried out under eachsubsequent armual subprogram, and (c) carrying out of each subsequent annual subprogram, allin Phase 1.

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ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 8 Cost Estimates

1. The project cost estimates by component are presented in the attached Tables. Table 1 shows theproject costs by component in both Col$ and US$. Table 2 shows the annual breakdown in US$equivalent. Project Costs were estimated in June 1993 prices and the inflation and exchange rateparameters detailed in Annex 10 were applied to estimate the price contingencies in current Col$ and US$.Detailed breakdowns by each component are in the Project File. Project costs are shown for each of thetwo phases of project execution, Phase 1 and Phace 2.

2. Project costs are shown net of taxes and VAT. Estimated taxes and duties, as well as VAT, areshown as a separate line item.

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ColonnbiaSantaft I Water Supply and Sewerage Rehabilitation Project

Table 1: Summary Project Cost Table

Page I of 2

Col.S Alillion USS Million % %Base Col.S Million USS Million % % BaseProject Components Local Foreign Total I Local Fore4n Total |Foreiga Cost Local Foreign Total Local ForMcig Total ForeiF n Cost

PHASE I PIIASE 2A - Vulnerability Control 9,830 14,744 24,574 20.3 30.5 50.9 60.0 17.6 4,661 6,992 11,653 5.9 8.9 14.8 60.0 7.51. Rehabilitation of time 2 Tbibto Piplines 6,225 9,338 15,563 11.5 17.2 28.6 60.0 9 9 0 0 0 0.0 0.0 0.0 hN/A 0.02 Rekabilitation of Tibito Treatneme Plant 3,604 5,406 9,011 89 133 22.2 60.0 7.7 00 0 00 00 0.0 hN/A 0.03. Construction of .tternate Usaquen Tunnel 0 0 0 0.0 00 0.0 8N/A 0.0 4,661 6,992 11,653 5.9 8.9 148 600 7 5B .PrlmnarySewerage&Drainage System 32,103 23.811 55,914 41.1 31.7 72.8 43.5 25.2 11,679 19,480 31,158 14.8 24.S 39.6 62.5 20.11. Bogota River intcrceptor Torca-Satitre 0 0 0 0.0 00 0.0 MN/A 0.0 4,342 6,513 10,855 55 83 138 60.0 7.02. Construction ofMainS ASCoLlectorsd Canals 13,992 20,989 34,981 17.8 267 445 600 15.4 6,671 10,006 16,677 8.5 12.7 21.2 600 10.83. Construction of Pumping Stations 634 2,822 3,457 1.1 5.0 6.2 81 6 2 1 666 2,960 3,626 0.8 3.8 4.6 81.6 2.34.Land Acquisition 17,476 0 17,476 22.2 00 22.2 0.0 7.7 0 0 0 0.0 0 0 0.0 hN/A 0.0C - Primary Water Distribution System 5,526 12,456 17,982 7.0 15.8 22.9 69.3 7.9 8,858 26,291 35,149 11.3 33.5 44.8 74.8 22.71. Primary Distribution Mains 3,086 10,106 13,193 3.9 12.8 16.8 76.6 58 5,792 18.967 24,759 74 24.1 31.5 76.6 16.02 StorageReservoirs 596 1,418 2,013 08 1.8 2.6 704 0.9 3,054 7,265 10,319 39 92 13 1 704 6.73. Pumping Stations 192 932 1,125 0.2 1.2 1.4 82.9 05 12 59 71 0.0 0.1 0.1 82.9 0.04.Land Acquisition 1,652 0 1,652 2.1 00 2.1 00 0.7 0 0 0 0.0 01 0.1 82.9 0.0D- Secondary Water & Sewerage Networks 23,557 15,705 39,262 30.0 20.0 49.9 40.0 17.3 28,286 18,857 47,143 36.0 24.0 59.9 40.0 30.4I. Secondary A Local Water Networks 3,001 2,001 5,002 3.8 2.5 6.4 40.0 2.2 3,822 2,548 6,371 4.9 3.2 81 40.0 4.12. Local Sewerage Networks 10,580 7,053 17,633 13.5 9.0 224 400 7.8 14,553 9,702 24,256 18.5 12.3 308 40.0 15.73 Secondary Sewerage Networks 7,569 5,046 12,615 96 6.4 160 400 56 7,173 4,782 11,955 9.1 6.1 15.2 40.0 7.74. Domestic WdlS Connections 2,407 1,604 4,011 3.1 2 0 5.1 40 0 I .8 2,737 1,825 4,562 3.5 2 3 5 8 40 0 2 9 00E - Rehabilitation Works 5,112 5,112 10,225 6.5 6.5 13.0 50.0 4.5 4,577 4,577 9,155 S.8 5.8 11.6 50.0 5.9l. Rehabilitation of Waler System 3,107 3,101 6,213 4.0 40 7.9 50.0 2.7 2,470 2,470 4,939 31 31 63 50.0 3.22 Rehabilitation ofSec'erage NetworAs 2,006 2,006 4.011 2.6 2.6 5.1 50 0 1 8 2,108 2,108 4,216 2.7 2.7 5.4 50.0 2.7F-Institutional Strengthening 9,445 19,490 28,936 12.0 24.8 36.8 67.4 12.7 0 0 0 0.0 0.0 0.0 hN/A 0.0-tUFWPrograns 5,623 12,159 17,782 7.1 155 226 68.4 7.8 0 0 0 0.0 0.0 0.0 MN/A 00

2- Water Consvation Program 1,021 1,532 2,553 1.3 1.9 3.2 60 0 11 0 0 0 0.0 0.0 0.0 MN/A 0.03- Training Program 553 553 1,106 0.7 0.7 1.4 50.0 0.5 0 0 0 0.0 00 00 MN/A 004-O&hU, LobA Comsunications Equipment 1,254 2,927 4,182 1 6 3.7 53 70.0 1.8 0 0 0 0.0 0.0 0.0 hN/A 0.0S-Data Processing Equipment& SW 994 2,320 3,314 1 3 2.9 4.2 70.0 1 5 0 0 0 0.0 0.0 0.0 MN/A 0.0G- TA & Consulting Services 13,598 13,598 27,197 17.3 17.3 34.6 50.0 12.0 10,261 10,261 20,521 13.0 13.0 26.1 50.0 13.31-Designs A TA 4,017 4,017 8,035 5.1 5.1 102 50.0 35 2,502 2,502 5,004 3.2 3.2 6.4 50.0 3.22-Su,peaision 6,466 6,466 12,932 8.2 8.2 16.4 50.0 5.7 6,484 6,484 12,968 82 82 165 500 8.43-AdAitional Studies 3,115 3,115 6,230 4.0 4.0 7 9 50.0 2.7 1,275 1,275 2,549 1.6 1.6 3.2 50.0 1.6H- Environmental Component 2,442 3,663 6,106 3.1 4.7 7.9 60.0 2.7 0 0 0 0.0 0.0 0.0 hNlA 0.0I-WdtlandsProtectionAManagement 55 83 138 0.1 0.1 0.2 60.0 0.1 0 0 0 0.0 0.0 0.0 NN/A 0.02- Wedands tanagement 773 1,159 1,932 1.0 1 5 2.5 60.0 0.9 0 0 0 0.0 0.0 0.0 MN/A 0.03-Mitigation Plan 345 517 862 04 0.7 1.1 60.0 04 0 0 0 0.0 0.0 0.0 #N/A 0.04- Voluntary Resettlenmt 1,104 1,656 2,760 1.4 21 3.5 60.0 1.2 0 0 0 00 0.0 00 MN/A 0 05-Advisory to EAAB s Environmental Committee 166 248 414 0.2 0.4 06 600 0.2 0 0 0 00 0.0 00 hN/A 0.0

TotalBaseCost 101,614 108,581 210,195 137.4 151.3 288.7 52.4 100.0 68,321 86,457 154,779 86.9 110.0 196.9 55.9 100.0Physical Contingency 10,161 10,858 21,019 13.7 15.1 28.9 52.4 10.0 6,832 8,646 15,478 8.7 11.0 19.7 55.9 10.0Price Contingencies 98,548 11,220 109,768 45.6 11.2 56.8 19.7 19.7 91,309 i6,160 107,469 42.2 17.9 60.1 29.8 30.5Total Project Cost 210,324 130,659 340,983 196.8 177.6 374.4 47.4 129.7 166,463 111,263 277,726 137.8 138.9 276.6 50.2 140.5Estimated Duties & Taxes 43,655 43,655 39.8 39.8 0.0 13.8 21,317 21,317 27.1 27.1 0.0 13.8Total Investment 253,979 130,659 384,638 236.5 177.6 414.2 42.9 143.5 187,780 111,263 299,043 164.9 138.9 303.8 45.7 154.3

X00

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- 83 -ANNEX 8

Colombia

Santaf. I Water Supply and Sewerage Rehabilitation Project

Table 1: Summary Project Cost Table

Page 2 of 2

Col.S .illion USS Million % % Baa.Project Components Local Fordgn Total I Local Forei n Total Forein Cost

GRAND TOTAL SANTAFE I PROJECTA - Vulnerability Control 14,491 21,736 36.226 26.27 39.41 65.6S 60.0 13.51. Rehabilitateio of the 2 TibitoPipdinet 6,225 9,338 1S,563 11.45 17.18 28.63 60.0 5.92. RehabiLitiaon of Tibito TreieAt Plant 3,604 5,406 9,011 8.89 13.34 22.24 60.0 4.63. Construcion ofAlternate Usequen Tunsei 4,661 6,992 11,653 5.93 8.89 14.82 60.0 3.1B - Primary Sewerage & Drainage System 43,782 43,291 87,072 55.99 56.48 112.46 50.2 23.21. Bogota RiverInterceptor rorca-saitre 4,342 6,513 10,855 S.52 8.28 13.80 60.0 2.8Z Construction ofMain S AS Colctors & CanaLs 20,663 30,995 51,658 26.27 39.41 65.68 60.0 13.53. Constrction ofPwnping Stations 1,300 5,782 7,082 1.97 8.79 10.76 81 6 2.24LandAcquisition 17,476 0 17,476 22.22 0.00 22.22 00 4 6C- Primary Water Distribution System 14,384 38.747 53,131 18.30 49.34 67.64 72.9 13.91. Primary Distribution Maint 8,879 29,073 37,952 11.29 36.96 48.25 76.6 9.9Z. StorageReservoirs 3,649 8,683 12,332 4.64 11.04 15.68 70.4 3.23. Pumping Stations 204 991 1,195 0.26 1.26 1.52 S2.9 0.3A Land Acquisition 1,652 0 1,652 2.12 0.07 2.19 34 0.5D- Secondary Water & Sewerge Networka 51,843 34,562 86,405 65.92 43.94 109.86 40.0 22.61. Secondary & Local Wate rNetworks 6,824 4,549 11,373 8.68 5.78 14.46 40 0 3.02 Local Sewerage Networks 25,133 16,756 41,889 31.96 21.30 S3.26 40.0 11 03. Secondary Sewerage Networks 14,742 9,828 24,S70 18.74 12.50 31.24 40.0 6.4

4 Donuestc W&SConnections 5,144 3,429 8,573 6.54 4.36 10.90 40.0 2.2

E - Rehabilitation Works 9,690 9,690 19,379 12.32 12.32 24.64 50.0 5.11. Rehabilitaion of Water Systiu 5,576 S,576 11,153 7.09 7.09 14.18 50.0 2.92. Rehabiitahoin of SewerageNetworks 4,113 4,113 8,227 5.23 5.23 10.46 50.0 2.2F-Institutional Strengthening 9,445 19,490 23,936 12.01 24.71 36.79 67.4 7.61- UFW Program S,623 12,159 17,782 7.15 15.46 22.61 68.4 4.72- Water Consevation Program 1,021 1,532 2,553 1.30 1.95 3.2S 60.0 0.73- Training Program 553 553 1,106 0.70 0.70 1.41 50.0 0.34- 0dM, Lab A Commanicadons Equipment 1,254 2.927 4,182 1.60 3.72 5.32 70.0 1.15- Data Processing Equipment A SW 994 2,320 3,314 1.26 2.95 4.21 70.0 0.9

G- TA & Consulting Services 23,859 23,859 47,718 30.34 30.34 60.67 50.0 12.51-Designs A TA 6,519 6,519 13,039 8.29 8.29 16.58 50.0 3.42- Supervision 12,950 12,950 25,900 16.47 16.47 32.93 50.0 6.83-Additional Studies 4,390 4,390 8,779 5.58 5.58 11.16 50.0 2.3

H- Environmental Comnponent 2,442 3,663 6,106 3.14 4.71 7.85 60.0 1.6I-Werlands Protection Management 55 83 138 0.07 0.11 0.18 60.0 0.02- Welands Management 773 1,159 1,932 0.98 1.47 2.46 60.0 0.53- Mitigation Plan 345 517 862 0.44 0.66 1.10 60.0 0.24- Voluntary Reseatlement 1,104 1,656 2,760 1.40 2.11 3.51 60.0 0.7

5-Advisory to EAA.BsErEvironmenrtl Conoaet 166 248 414 0.25 0.37 0.61 60.0 0.10 0 0 0.00 0.00 0.00

Total Base Cost 169,936 195,038 364,973 224.29 261.32 485.60 53.8 100.0Physical Contingency 16,994 19,504 36,497 22.43 26.12 48.55 53.8 10.0Price Contingencies 189,857 27,380 217,237 87.83 29.07 116.90 24.9 24.1

Total Project Cost 376,787 241,922 618,708 334.5 316.5 651.1 48.6 134.1Estimated Duties & Taxes 64,973 0 64,973 66.9 0.0 66.9 0.0 13.8

Total Investment 441,759 241,922 6U3.681 401.4 316.5 717.9 44.1 147.8

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Colombia

Santafi I Water Supply and Sewerage Reb-hiiitation Project

Table 2: Estimated Annual Project Cost

Page I of 2

In USS Million Equivlent, July 1993 Prices % Bise In USS Million Equivalent, July 1993 Prices % Base

Project Components 1994 1995 1996 1997 1998 1999 2000 2001 Total Cost 1998 1999 2000 2001 Total I Cost

A- Vulnerability Control PHASE I PHASE 2

1- Rehabilitation of the 2 Tibito Pipelines 0.00 0.00 9.00 10.79 8.84 0.00 0.00 0.00 28.63 9.9 0.00 0.00 0.00 0.00 0.00 0.0

2- Rehabilitation of Tibito Treatment Plant 0.00 0.00 2.77 8.68 10.78 0.00 0.00 0.00 22.24 7.7 0.00 0.00 0.00 0.00 0.00 0.03-Construction of Alternate Usaquen Tunnel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0 0.00 5.34 9.15 0.32 14.82 7.5

B- Primary Sewerage & Drainage SystemI-Bogota River Interceptor & Torca Salitre 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0 0.00 3.45 6.90 3.45 13.80 7.0

2-Constructiou of Main S&S Collectors & Canals 0.00 1.06 4.53 20.34 18.55 0.00 0.00 0.00 44.48 15.4 0.00 6.73 9.13 5.35 21.20 10.8

3-Constructiousof PunpingStation 0.00 0.00 0.00 4.40 1.76 0.00 0.00 0.00 6.15 2.1 0.00 2.59 2.02 0.00 4.61 2.3

4- Land Acquisition 2.40 5.00 12.00 2.82 0.00 0.00 0.00 0.00 22.22 7.7 0.00 0.00 0.00 0.00 0.00 0.0

C-Primary Water Distribution System

1-PrimaryDistribution Mains 0.00 5.63 6.39 4.33 0.42 0.00 0.00 0.00 16.77 5.8 0.00 0.00 12.90 18.58 31.48 16.0

2-Storage Reservoirs 0.00 0.00 0.54 2.02 0.00 0.00 0.00 0.00 2.56 0.9 0.00 5.44 5.60 2.08 13.12 6.7

-PumpIngStations 0.00 0.00 0.23 0.10 1.10 0.00 0.00 0.00 1.43 0.5 0.00 0.00 0.00 0.09 0.09 0.0

4- LandAcquisition 0.90 0.00 0.00 0.40 0.80 0.00 0.00 0.00 2.10 0.7 0.00 0.00 0.00 0.00 0.00 0.0

D- Secondary Water h Sewerage Systems

1-SecondaryhLocal WaterNetworks 0.00 1.60 1.26 1.20 2.30 0.00 0.00 0.00 6.36 2.2 0.00 3.30 3.30 1.50 8.10 4.1

2- Local Sewerage Networks 0.00 1.50 2.92 7.00 11.00 0.00 0.00 0.00 22.42 7.8 0.00 13.00 13.00 4.84 30.84 15.7

3-SecoadarySewerageNetworks 0.00 1.14 1.90 5.00 8.00 0.00 0.00 0.00 16.04 5.6 0.00 7.70 5.80 1.70 15.20 7.7

4- DomesicW&SConsections 0.00 0.00 1.70 1.70 1.70 0.00 0.00 0.00 8.10 1.8 0.00 1.70 1.70 2.40 5.80 2.9 i

E-RnbabilitUio Works

1- RehablitationofWaterSystemz 0.00 0.00 4.90 1.50 1.50 0.00 0.00 0.00 7.90 2.7 0.00 1.50 1.50 3.28 6.28 3.22-RebablitationofSewerage Networks 0.00 0.00 1.90 1.60 1.60 0.00 0.00 0.00 5.10 1.8 0.00 1.60 1.60 2.16 5.36 2.7

F- laatitutioanl Strengtuening

1-UWF Program 0.00 3.58 6.43 4.91 4.29 3.40 0.00 0.00 22.61 7.8 0.00 0.00 0.00 0.00 0.00 0.0

2-Water Conservation Program 0.00 0.61 0.88 0.88 0.88 0.00 0.00 0.00 3.25 1.1 0.00 0.00 0.00 0.00 0.00 0.0

3-TralinagPrPram 0.00 0.30 0.31 0.28 0.24 0.12 0.12 0.04 1.41 0.5 0.00 0.00 0.00 0.00 0.00 0.0

4- OAM Lab h Communications Equipment 0.00 0.36 1.05 0.94 0.97 1.04 0.63 0.33 5.32 1.8 0.00 0.00 0.00 0.00 0.00 0.0

5-DtlhProcasti*gEqulpment&SW 0.00 1.51 0.55 0.46 0.46 0.41 0.41 0.41 4.21 1.5 0.00 0.00 0.00 0.00 0.00 0.0

G- TA h Consulting Servkes

I-Designs & TA 0.00 2.19 3.06 2.72 2.25 0.00 0.00 0.00 10.22 3.5 0.00 2.92 2.38 1.06 6.36 3.2

2-Supervision 0.00 1.13 3.28 6.08 5.95 0.00 0.00 0.00 16.44 5.7 0.00 5.07 7.09 4.33 16.49 8.4

3- Additional Studies 0.00 2.37 2.10 2.53 0.93 0.00 0.00 0.00 7.92 2.7 0.00 1.39 1.36 0.48 3.24 1.6

fl-Eavironseatai Component1- Wedands Protection Program 0.00 0.18 0.00 0.00 0.00 0.00 0.00 0.00 0.18 0.1 0.00 0.00 0.00 0.00 0.00 0.0

2- Wetland Management 0.00 0.49 0.33 0.33 0.33 0.33 0.33 0.33 2.46 0.9 0.00 0.00 0.00 0.00 0.00 0.0

3- Mitigation Plan 0.00 0.18 0.35 0.35 0.22 0.00 0.00 0.00 1.10 0.4 0.00 0.00 0.00 0.00 0.00 0.0

4- Voluntary Rettlement 0.00 1.32 1.32 0.U8 0.00 0.00 0.00 0.00 3.51 1.2 0.00 0.00 0.00 0.00 0.00 0.0

S-Advisory to EAAB's Environmental Comnmnittee 0.00 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.61 0.2 0.00 0.00 0.00 0.00 0.00 0.0

TotalBas Cost 3.30 30.25 69.77 92.31 84.94 5.39 1.58 1.20 288.72 100.0 0.00 61.73 83.44 51.63 196.79 100.0

Total Pbysical Contingencies 0.33 3.02 6.98 9.23 8.49 0.54 0.16 0.12 28.87 10.0 0.00 6.17 8.34 5.16 19.68 10.0

Total Price Contingencies 0.39 4.17 12.40 17.81 19.98 1.25 0.43 0.37 56.81 19.7 0.00 17.38 25.52 17.19 60.08 30.5

Total Investment Cost 4.02 37.44 S9.15 119.35 113.41 7.17 2.17 1.69 374.40 129.7 0.00 85.28 117.29 73.98 276.56 140.5

Duties A Taxes 0.45 4.17 9.61 12.71 11.70 0.74 0.22 0.16 .9.76 13.8 0.00 8.50 11.49 7.11 27.10 13.8 XTotalProjectCost(bcl.DutisA Tax*s) 4.48 41.61 98.76 132.07 125.11 7.91 2.39 1.85 414.17 143.5 0.00 93.79 128.79 81.09 303.66 154.3 00

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ColombiaSantafe 1 Water Supply and Sewerage Rehabilitation Project

Table 2: Estimated Annual Project CostPage 2 of 2

|______________________ IN USS Millon Equivalent, July 1993 Prices To % BassProject Compoents 1994 1995 1996 1997 19 1999 2000 2001 Tot Cost

A- Vulnerability Control GRAND TOTAL SANTAFE I PROJECT1- Rehabilitation of the 2 Tibito Pipelines 0.00 0.00 9.00 10.79 8.84 0.00 0.00 0.00 28.63 5.92- Rehabilitation of Tibito Treatment Plant 0.00 0.00 2.77 S.68 10.78 0.00 0.00 0.00 22.24 4.63-Construction of Aiternate Usaquen Tuned 0.00 0.00 0.00 0.00 0.00 5.34 9.15 0.32 14.82 3.1

i- Primary Sewerage & Drainage SystemI-Bogota River Interceptor & Torca Saitre 0.00 0.00 0.00 0.00 0.00 3.45 6.90 3.45 13.80 2.8-Construction of Main S&S Collectors & Canals 0.00 0.42 4.53 20.34 18.55 6.73 9.13 5.35 65.05 1.4-Construction of Pumping Stations 0.00 0.00 0.00 4.40 1.76 2.59 2.02 0.00 10.76 2.2

4. Land Acquisition 2.40 5.00 12.00 2.82 0.00 0.00 0.00 0.00 22.22 4.6

C-Primary Water Dietribution System1- Primary Distribution Mains 0.00 1.32 6.39 4.33 0.42 0.00 12.90 18.S8 43.94 9.02-Storage Reservoin 0.00 0.00 0.54 2.02 0.00 5.44 S.60 2.08 15.68 3.23-Pumping Stations 0.00 0.00 0.23 0.10 1.10 0.00 0.00 0.09 1.52 0.34- Land Acquisition 0.90 0.00 0.00 0.40 0.80 0.00 0.00 0.00 2.10 0.4

D- Secondary Water & Sewerage Sytms1- Secondary & Local Water Networks 0.00 0.96 1.26 1.20 230 3.30 3.30 1.50 13.82 2.82- Local Sewerage Networks 0.00 0.90 2.92 7.00 11.00 13.00 13.00 4.84 52.66 10.8.Secondary Sewerage Networks 0.00 0.68 1.90 5.00 8.00 7.70 S.80 1.70 30.78 6.3

4- Domestic W&S Connecos 0.00 0.00 1.70 1.70 1.70 1.70 1.70 2.40 10.90 2.2

E-Rehabilitation Works1- RehabilItation of Water Sym 0.00 0.00 4.90 1.50 1.50 I.S 1.80 3.28 14.18 2.92- Rehabilitation of Swerage Networks 0.00 0.00 1.90 1.60 1.60 1.60 1.60 2.16 10.46 2.2

F- Institutional Strengtbeningl-UWI Program 0.00 3.58 6.43 4.91 4.29 3.40 0.00 0.00 22.61 4.72-Water Conservation Propam 0.00 0.61 0.88 0.88 0.88 0.00 0.00 0.00 3.25 0.73-Training Progria 0.00 030 0.31 0.28 0.24 0.12 0.12 0.04 1.41 0.34- O&M Lab & Communications EquIpmet 0.00 0.36 1.05 0.94 0.97 1.04 0.63 0.33 5.32 1.15-Data Processing Equipment & SW 0.00 1.51 0.55 0.46 0.46 0.41 0.41 0.41 4.21 0.9

G- TA & Consulting ServInes1-Designs & TA 0.00 2.19 3.06 2.72 2.25 2.92 2.38 1.06 16.5S8 3.42-Supervision 0.00 1.13 3.28 6.08 S.95 S.07 7.09 4.33 32.93 6.83. Additional StudIs 0.00 2.37 2.10 2.53 0.93 1.39 1.36 0.48 11.16 2.3

H-Environmental Component1- Wetlands Protection Program 0.00 0.11 0.00 0.00 0.00 0.00 0.00 0.00 0.18 0.02- Wetland Management 0.00 0.49 0.33 0.33 0.33 0.33 0.33 0.33 2.46 0.53-MItigation Plan 0.00 0.18 0.35 0.35 0.22 0.00 0.00 0.00 1.10 0.24- Voluntary Resettlement 0.00 1.32 1.32 0.88 0.00 0.00 0.00 0.00 3.51 0.7S-Advisory to EAAB's Environmental Committe 0.00 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.61 0.1Total Base Cost 3.30 30.25 69.77 92.31 84.94 67.12 85.02 S2.82 48S.51 100.0Total Physical Contingencies 0.33 3.02 6.98 9.23 849 6.71 .50 5.28 48.ss 10.0Total Price Contingencies 0.39 4.17 12.40 17.81 19.98 18.62 25.95 17.57 116.90 24.1Total Investment Cost 4.02 37.44 89.1S 119.35 113.41 92.45 119.47 75.67 650.96 134.1Duties & Taxes 0.45 4.17 9.61 12.71 11.70 9.24 11.71 7.27 66.87 13.8Total Project Cost (inci.Duties& Taxs) 4.48 41.61 98.76 132.07 125.11 101.70 131.17 82.94 717.83 147.8

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ANNEX 9

ColombiaSantafe I Water Supply and Sewerage Rehabilitation Project

Annex 9 Economic Analysis: Methodology and Results

A. Cost- Benefit Analysis

A. Methodology

1. The economic rate of return was calculated by comparing the costs and benefits of piped water andsewerage services in two scenarios: one in which the project is implemented and one in which the project isnot implemented. All costs and benefits are expressed in constant prices. The prices used in the analysis areadjusted for the impact of taxes and subsidies. Shadow exchange rates and prices were not estimated, dueto lack of sufficient reliable data.

2. The "with the project" scenario includes investments aimed at reducing the vulnerability of thewater system, thus enhancing the reliability of the system substantially. The rehabilitation of the Tibitotreatment plant and one of the transmission pipelines that connects the treatment plant with the BogotaMetropolitan Area would result in an effective expansion4 of the production capacity of about 7 m3 persecond. The project also includes a number of investments that will increase the efficiency of EAAB'soperations aiming at reducing the unaccounted-for water, and improving the collection efficiency. Theproduction capacity expansion and the efficiency improvements, in combination with an expansion of thedistribution system, will enable EAAB to accommodate future demand growth. In the year 2000, EAABwill be able to supply its services to more than 1 million new customers. Moreover, the project would aimat reducing the risk of flooding in especially low-income areas. The project also includes an environmentalprogram for the protection and the management of the wetlands of Bogota. In addition, the project willfinance technical assistance to strengthen the institutional, financial and environmental capacity of thecompany to efficiently operate the company.

3. Without the project, it is likely that all these investments will not take place. In the "withoutproject" scenario, rationing will occur continuously, while in the "with project" scenario rationing will nolonger be necessary from 1999 onwards. Nevertheless, by the year 2014 rationing will occur as demandwill outstrip the available production capacity again.

4. The current nominal production capacity is 25 m3 per second. However, only 17.7 m3 per second can be effectivelyused. Rehabilitation of the Tibito plant will enable EAAB to use all its nominal production capacity effectively.

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ANNEX 9

B. Calculation Of Project Benefits

4. The economic justification for the project is based on the benefits it would generate in the form ofhigher water sales and cost savings from investments that promote efficiency in water supply and sewerage.These benefits will mainly stem from the rehabilitation of the water supply and sewerage network, and theimplementation of the water loss reduction program.

5. The project would also foster a number of non-quantifiable benefits. The unavailability of reliabledata have precluded a quantitative estimation of these benefits. These benefits include health benefits,environmental benefits, cost savings from postponed investment, increased property values in flood proneareas, and benefits associated with the institutional strengthening of the capacity of EAAB to plan andmanage its resources. The expansion of the water supply and sewerage network in low-income areas inBogota will generate health benefits. The incremental consumer surplus could be substantial because anincrease in aggregate water consumption and improved service quality will increase the consumer'swillingness to pay. However, illegal connections are an important drain on the revenues of the EAAB. It isevident, that the present project that will include a program to legalize illegal connections, will have anegative impact on the consumer surplus of this type of consumer. Rehabilitation will extend the lifetimeof the water supply and sewerage network, postponing the need for new investment. An indirect benefit ofthe expansion of water supply, sewerage and drainage services in the low-income areas will be to increaseproperty values for households that get access to the piped water system. The institutional strengtheningprogram could also have a positive impact on the implementation of the other project investments.

6. The project components aimed at reducing the vulnerability of the present system will result - incombination with an expansion of the distribution system - in an increase of the effective productioncapacity by 7.3 cubic meters per second from 17.7 m3 per second in 1994 to 25 m3 per second in 2002.Moreover, the available water supply will increase due to the reduction of unaccounted-for water losses.These losses are currently around 40% and will decline to 28% in 2002.

7. The incremental revenues from the sale of future water and sewerage services have been used as aproxy for direct-use benefits. The average water and sewerage tariff is currently US$0.44 per m3 (in July1993 prices). To ensure financial viability, the average tariff has to be gradually increased to US$0.48 percubic meter by 1998. This higher rate has been used as a proxy to calculate project benefits. This tariff ishigher than the rates domestic consumers will actually pay, since cross-subsidies in the water rate have notbeen considered in the calculation of project benefits. In addition, the collection efficiency will increasefrom 80% in 1994 to 92% in 2000 as part of the water loss reduction program.

C. Internal Economic Rate Of Return

8. The evaluation of the economic viability of the Santa Fe I Water Supply and SewerageRehabilitation Project includes benefits from higher water sales and cost savings described in para. 5, theinvestment costs, and operation and maintenance costs projected for the period under review. The fixedoperation and maintenance costs of the project are only 1.5%, as it has been assumed that the increase ineffective production capacity will not require new staff, because the current staff per connection ratio stillleaves room for further improvement. The variable operation and maintenance cost will increase

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- 88 -ANNEX 9

substantially as the energy and chemical cost of the Tibito treatment plant are much higher than those ofthe Wiesner plant.

9. A discount rate of 10 percent is used to calculate the net present value resulting from the project.To reflect true costs and benefits, financial prices have been transformed into economic prices. The majordifference between financial and economic prices involves the impact of taxes and subsidies. In addition,price contingencies are not included in the total investment costs since it has been assumed that the pricesof goods and services acquired under the project will rise in line with general inflation. Investment andoperation and maintenance costs are adjusted for the impact of subsidies and taxes. The base-case scenariois defined as the scenario in which only the benefits of higher water sales and cost savings are included. Thenet present value of the project is US$ 209 million, the intemal economic rate of return is 17 percent, andthe benefit-cost ratio is 1.49.

D. Sensitivity Analysis

10. In the sensitivity analysis the impact of a number of variables has been tested. These variablescomprise the impact of cost overruns, higher fixed operation and maintenance cost, changes in water rates,project delays, changes in the decline in the unaccounted-for water, changes in collection efficiency and theimpact of the price elasticity of demand.

11. Impact of cost overruns. The project's sensitivity to cost overruns has been tested. The switchingvalue (i.e., value when the project becomes nonviable) for cost overruns of total investment is about 54percent. If investment (and consequently the fixed operation and maintenance cost) were to increase bymore than 54 percent, the project would become economically not viable.

12. Impact of higher fixed operation and maintenance cost. The fixed operation and maintenancecost are set at 1.5 percent of total investment. The low fixed operation and maintenance cost are based onthe assumption that there is still ample room for improving the efficiency of the company. If the fixedoperation and maintenance cost increases to 7.7 percent of total investment the project will no longer beviable.

13. Impact of project delays. One of the major risks comected to the project are related toinstitutional weaknesses which could have an important impact on the project implementation. If the projectis delayed by two years and the project were to close in 2003 instead of 2001, the net present value woulddecline to US$183 million, the intemal rate of return would drop to 16%, while the benefit-cost ratio wouldfall to 1.43. If the project is started one year later than originally envisaged, the net present value woulddecline to US$ 184 million.

14. Impact of water rate changes. If no rate increases were implemented, the net present value of theproject would decline to US$ 162 million, the intemal economic rate of return would be 16 percent, and thebenefit-cost ratio 1.38.

15. Impact of higher unaccounted-for water. If it is assumed that the water loss reduction programis unsuccessful and that it will not result in any reduction of the unaccounted-for water in either scenario,the project will still remain profitable. If the unaccounted-for water ratio were to remain at its present level

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- 89 -ANNEX 9

of 40%, the net present value would decline to US$ 27 million, whereas the internal rate of return woulddecline to 11% and the benefit-cost ratio would drop to 1.06. However, if EAAB succeeds in reducing theunaccounted-for water to levels that are targeted (i.e., 18 percent in 2000) in the agreements between thenational govemment and EAAB, the net present value will increase substantially.

16. Impact of a lower collection efficiency. If it is assumed that the collection efficiency will notincrease to 92 percent in 2000, but will remain in either scenario at its level of 80 percent, the net presentvalue will decline to US$ 25 million, whereas the intemal rate of return would decline to 11 percent and thebenefit cost ratio would drop to 1.06.

17. Impact of the introduction of price elasticity of demand. In the current demand analysis, noprice elasticity mechanism has been introduced. In the current scenario, per capita residential consumptionis assumed not to be affected by these price increases. However, studies in other parts of Latin Americahave shown that residential customers do react to rate increases by reducing their consumption. If it isassumed that the price elasticity of residential demand is -0.305, the net present value of the project declinesto US$ 192 million, the internal rate of return would drop to 16 percent, while the benefit-cost ratiowouldfall to 1.46.

18. The combined impact of key variables. A very pessimistic scenario that could occur duringproject implementation is a reduced tariff increase, the existence of a price elasticity mechanism, limitedsuccess in improving the collection efficiency, a limited reduction of the unaccounted-for water and a costoverrun. If it is assumed that water and sewerage rates will only increase by half as is needed to ensurefinancial viability, price elasticity is -0.30, the collection efficiency will improve only to 85 percent,investment cost will tum out 20% higher than initially anticipated and unaccounted-for water will decline toonly 32 percent, the project would no longer be viable, as the net present value would tum negative to US$-36 million, whereas the internal rate of return would decline to 9% and the benefit-cost ratio to 0.93.

B. Marginal Cost Pricing

19. The long-run average incremental costs were calculated separately for EAAB's water supply andsewerage system. The planning horizon covers 30 years and the opportunity cost of capital is set at 10percent. In the mnarginal cost calculations, all cost components have been transformed from market pricesinto economic prices by excluding the impact of taxes and subsidies. Shadow prices have not beenestimated.

5. The value of a price elasticity of residential demand is based on the results of recent studies in other parts of LatinAmerica. Other studies have also shown that non-residential demand is affected by changes in water tariffs. However,calculating a price elasticity for non-residential demand is more difficult as the value of the price elasticity depends on factorssuch as the type of industries and their specific water needs, which depend on the quality and quantity of water supplyrequired in the production process.

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ANNEX 9

A. Capacity Expansion Costs

20. Incremental costs in water supply and sewerage systems result from new investment and theoperation and maintenance of this additional capacity. Investment or capacity costs for water supplyconsist of investments for institutional development, water treatment, transmission, distribution, andconnections. They also include investments to reduce water losses. Rehabilitation investments areconsidered equivalent to investments in water intake since they result in increased water supply. Forsewerage, capacity costs include investments for project management, sewerage connections, collectors,and interceptors. Incremental fixed operation and maintenance costs are estimated at 1.5 percent of theaccumulated capacity investment, assuming further efficiency improvements in the operation of EAAB.Total capacity costs are equal to the sum of capacity investment costs and incremental fixed operation andmaintenance costs. The net present value of these costs is calculated using an assumed opportunity cost of10 percent.

B. Incremental Operating Costs

21. The marginal operating costs are calculated as the cost of the last water source used to satisfydemand. In Bogota, the available effective production capacity is currently insufficient to satisfy demand.The marginal operating cost has therefore been estimated assuming that the Tibito treatment plant(including the transmission pipes that connect Tibito with the Bogota Metropolitan Area) is the marginalsource. The unit costs of all variable inputs (energy and chemicals) needed to produce an additional cubicmeter of water have been determined at US$ 0.04.

22. The main type of variable operation cost in a sewerage system are energy costs. Because thesewerage system in Bogota is - with a few exceptions - gravity-based, variable operation costs are thereforeassumed to be zero.

C. Long-Run Average Incremental Costs

23. Long-run average incremental costs have been calculated at each stage of the project as the ratio ofthe sum of the present value of capacity costs, plus incremental operating costs to the sum of present valuesof the incremental volume of water. In this project, the incremental volume of water results from areduction of unaccounted-for-water, and a rehabilitation of the supply network. The long-run averageincremental cost is computed based on incremental water production. It is thus necessary to adjust forwater losses in order to calculate the marginal cost per consumed cubic meter. Based on the currentdistribution of water losses and the expected change in these losses once the project is implemented, a lossadjustment factor has been calculated (Figure 1). The table on page 98 presents the long-run averageincremental costs for different stages of the water production process. The total long-run averageincremental cost is US$ 0.33 per cubic meter consumed.

24. Since the sewerage network does not face variable operating costs, long-run average incrementalcosts are equal to the ratio of the present value of expansion capacity cost to the present value of theincremental volume of water sold. The volume of sewage produced per connection is estimated at 85percent of the volume of water consumed. Based on these assumptions, the long-run average incrementalcost for sewage is US$ 0.22 per cubic meter consumed.

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ANNEX 9

25. The long-run average incremental cost for water supply and sewerage is US$ 0.55, based on theinvestments required for the Santa Fe I Water Supply and Sewerage Rehabilitation Project. The proposedproject will enable EAAB to service customers until 2013. After 2013, the production capacity will beinsufficient to satisfy demand, and new investments will be required. These new investments will involveexpensive altematives, such as the Chingaza expansion and the development of the Sumapaz Alto Muna.Moreover, wastewater is currently not treated but directly disposed of in the Bogota river. The consequentpollution will increase in the coming years due to the increase in population, which will result in biggerwastewater flows. It is evident that this pollution problem has to be resolved.

26. Based on preliminary data from recent studies, the required water supply investments will be closeto US$ 0.9 billion (in constant prices of 1993), whereas the required investment for sewerage treatment willtop US$ 1.1 billion (in constant prices of 1993). Based on these data, the long-run average incremental_cost for water supply and sewerage (excluding the proposed investment under Santa Fe I Water Supply and

Sewerage Rehabilitation project) will increase sharply to US$ 1.21 for water supply and US$ 1.04 forsewage compared to the US$ 0.33 for water supply and US$ 0.22 for sewage at present. The high cost ofnew projects will have major implications, and will need to be taken into account in future sector strategies.

27. An estimate of the LRAIC is also calculated on the basis of the assumed investment scenarios for newwater source development and for the major investments needed in wastewater treatmnent. The LRAIC has beenadjusted for the levels of water losses at each stage of the process. Chart 1 attached to this Annex shows thepresent water balance in the Bogota metropolitan area. Table 2 shows the details of the calculations. Theincremental water production is estimated at the average rate of increase observed over the past decade, and thatis the current basis for EAAB's water source planning.

28. The marginal cost pricing shows that the present level of average tariffs covers only a small part of thecalculated very long- run LRAIC for water and sewerage and wastewater treatment. As the wastewater treatmentplants are completed, it will become necessary to more than double the average tariffs in order to meet the costsfor providing these services. No attempt has been made at this juncture to evaluate the potential effects of suchhkely increases on the affordability, nor the willingness to pay of the average household in Bogota. It must bestressed that the time horizon of the economic analysis is substantially longer than the financial forecasts.Moreover, in calculating the LRAIC for water, no account has been taken of the potential power benefits thatwould be recoverable and would offset the costs allocated to water. In the case of the future sources underconsideration, these power benefits have been estimated by EAAB's consultants at more than 50% of theinvestment costs.

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TABLE 9.1SANTA FE WATER SUPPLY AND SEWERAE REHABIUTATION PROJECT

COST43ENEFIT FLOWS WTH PROJECT SITUATIOBASE CASE SCENARIO

tIn Uwsads of US o July 1993)

Y; ToW wl CowW Avn -$ii Tot nW# i : - ' '''T;O Om bpjic_ _wuamofi tt W" c c CIM c b____t ___A_ -____O

1994 335.715 80% 0.44 118.172 3.630 54 0 3.654 114,4871995 340.686 80% 0 44 119.921 33,264 553 66 33.883 86.0381996 349.495 82% 0 45 129,881 76.769 1.705 671 79.145 50.7361997 381,950 85% 0 46 150,813 101,563 3,228 2.066 106.858 43.9551998 416,230 87% 0 48 172.421 93.456 4.630 3.913 101.999 70.4221999 462.428 90% 0o48 198.164 73,832 5.738 5.156 84.725 113,4382000 473.153 92% 0.48 207.266 93,51 1 7.140 5,394 106.045 101,2202001 483.803 92% 048 211,931 57. 178 7.998 5,213 70.389 141.5422002 494.103 92% 0o48 216.443 7.998 5,416 13,414 203,0292003 504.014 92% 0.48 220.784 7.998 5.591 13,589 207.1952004 513.495 92% 0.48 224,938 7.998 5,349 13,347 211.5902005 522.240 92% 0 48 228,768 7,998 5,454 13.452 215,3172006 530.978 92% 0 48 232.596 7.998 5,935 13.933 218.663 t2007 539.858 92% 0 48 236.486 7,998 6,424 14.422 222,0642008 548.884 92% 0.48 240.440 7.998 6.922 14,920 225,5202009 558.057 92% 0 48 244,458 7.998 7,427 15.425 229.0332010 567,379 92% 0 48 248.542 7.998 7,941 15.939 232,6032011 576.855 92% 0.48 252,692 7.998 8,463 16.461 236.2312012 586.485 92% 0 48 2568911 7,998 8,994 16.992 239,9192013 596.272 92% 0 48 261,198 7,998 9,533 17,531 243,6672014 599,184 92% 0 48 262,474 7.998 9,693 17.691 244,7822015 599.184 92% 0 48 262.474 7,998 9,693 17.691 244,7822016 599,184 92% 0 48 262.474 7,998 9,693 17,691 244.7822017 599,184 92% 0.48 262,474 7.998 9,693 17.691 244.7822018 599,184 92% 0.48 262,474 7.998 9,693 171.91 244,7822019 599,184 92% 0 48 262,474 7.998 9,693 17.691 244,7822020 599.184 92% 0 48 262,474 7.998 9.693 17.891 244.7822021 599,184 92% 0 48 262,474 7.998 9.693 17,891 244,7822022 599.184 92% 0.48 262.474 7,998 9,693 17,691 244.7822023 59. 184 92% 0 48 262,474 _,996 9,8 17,691 244,782

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TABLE .2SANTA FE WATER SUPPLY AND SEWERAGE REHAPILITATION PROJECT

COST- BENEFIT FLOWS WITHOUT PROJECT SITUATIONBASE CASE SCENARIO

(in liousands d USS a of July 19033

Yr i WO -. ucol -iiw6n -Ar -j"Fxd - Vsra* Td--Y No SWoi tconsuwmp oEc Watnr ra _b_w_ _t_t X co OEM 9PM 9_ _

1994 335,715 80% 0 44 118.172 0 118,1721995 335.715 80% 0 44 118.172 0 118.1721996 335.715 80% 0 45 121,717 0 121,7171997 335.715 80% 0 46 124.760 0 124,7601998 335.715 80% 0 48 127.879 0 127.8791999 335.715 80% 0 48 127,879 0 127,8792000 335,715 80% 0 48 127.879 0 127,8792001 335,115 80% 0 48 127,879 0 127,8792002 335.715 80% 0 48 127.879 0 127.8792003 335.715 80% 0 48 127,879 0 127,8792004 335.715 80% 0 48 127,879 0 127.8792005 335,715 80% 0 48 127.879 0 127,8792006 335,715 80% 0 48 127.879 0 127,8792001 335.715 80% 0 48 127.879 0 127.8792008 335.715 80% 0 48 127,879 0 127.8792009 335.715 80% 0 48 127.879 0 127.8792010 335,715 80% 0 48 127.879 0 127.8792011 335.715 80% 0 48 127.879 0 127,8792012 335.715 80% 0 48 127.879 0 127.8792013 335.715 80% 0 48 127.879 0 127.8792014 335.715 80% 0 48 127,879 0 127.8792016 335.715 80% 0 48 127.879 0 127.8792016 335.715 80% 0 48 127.879 0 127.8792017 335.715 80% 0 48 127,879 0 127.8792018 335.715 80% 0 48 127.879 0 127,8792019 335.715 80% 0 48 127,879 0 127.8792020 335.715 80% 0 48 127.879 0 127.8792021 335.715 80% 0 48 127,879 0 127,8792022 335.715 80% 0 48 127,879 0 127.8792023 335,715 80% 0.48 127,87

9 0 127 87S

'0

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ANNEX 9

TABLE 9.3SANTA FE WATER SUPPLY AND SEWERAGE REHABIUTATION PROJECT

SUMMARY COST BENEFIT ANALYSISBASE CASE SCENARIO

(In thousands of USS as of July 1993)

: :-;:Yu Net bendi e bandits -; jiwith wttho. n

pro rol bnef1994 114,487 118,172 (3,6841995 86,038 118,172 (32,1341996 50,736 121,717 (70,9811997 43,955 124,760 (80,8041998 70,422 127,879 (57,4581999 113,438 127,879 (14,4402000 101.220 127,879 (26,6582001 141,542 127,879 13,6632002 203,029 127,879 75,1502003 207,195 127,879 79,3172004 211,590 127,879 83,7122005 215,317 127,879 87,4382006 218,663 127,879 90,7842007 222.064 127,879 94,1852008 225,520 127,879 97,6412009 229,033 127,879 101,1542010 232,603 127,879 104,7242011 236,231 127,879 108,3532012 239,919 127,879 112,0402013 243,667 127,879 115,7892014 244,782 127,879 116,9042015 244,782 127,879 116,9042016 244,782 127.879 116,9042017 244,782 127,879 116,9042018 244,782 127,879 116,9042019 244.782 127,879 116,9042020 244,782 127,879 116,9042021 244,782 127,879 116,9042022 244,782 127,879 116,9042023 244,782 127,879 116,904

Net Present Value (r=1 0%) 209,093Intemal Rate of Return 17.0%Benefit-Cost Ratio 1.49

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TABUE DASNTA FE I WATER SUPPLY AND SEWERAGE REHAUIUTATION PRJECT

TOTAL CAPACITY WSTMENT COSTS Vkin00 uslidouas of JUIm Is3

-V lIstUt -r Tr!iti5ion Tiso P Coeoo U5S WATe CoJ-tine C diior Untratii ii;iq i w --l5TAi-Developmwnt Inbtae 2_ SUPPLY 3_ bmes o& Dls_KsS Tr _mea_ PROJECT

1994 0 0 990 o0 0 0 99 0 2.640 o 0 0 0 240 3,6301995 13.255 0 6,193 0 1,760 7.079 0 28.287 7,136 9.570 0 0 0 2.486 19.191 47.4781996 19.426 0 17.776 3.047 3.256 6.923 0 50.428 6,993 23.485 0 0 0 2.299 32,777 83.2051997 20,680 0 19.404 9.48 3.190 7.016 0 59,838 7.092 43,516 0 0 0 1.815 52.423 112.2601998 17.567 0 12.276 1 1.868 4,400 7.164 0 53.265 7.244 43.241 0 0 0 704 51.189 104.4541999 15.785 5.874 5.964 0 5.500 7.293 0 40.436 7,376 36.817 0 0 0 462 44.655 85.0912000 13 89 10.065 20.350 0 5,500 7.398 0 56.502 7,487 40.635 0 0 0 462 48.484 104.9M62001 7.315 352 22,825 0 3.355 7.343 0 41,190 7,443 16,874 0 0 0 462 24.779 65.9682002 a 0 0 0 0 7.069 0 7,089 7,206 0 0 0 0 0 7.208 14.2972003 0 0 0 0 0 6.807 0 6.807 6.944 0 0 a 0 0 6.944 13,7512004 0 0 0 0 0 6.497 0 6.497 6.653 0 0 0 0 0 6.653 13.1502005 0 0 0 0 0 5.965 0 5.965 6.148 0 0 0 0 0 6.148 12.1132006 0 0 0 0 0 5.958 0 5,958 6.149 0 0 a 0 0 6.149 12.1072007 0 0 0 0 0 6.058 0 6.059 6,253 0 0 0 0 0 6.253 12.3132008 0 0 0 0 0 6.162 0 6.162 6.360 0 0 0 0 0 6.360 12.5222009 0 0 0 0 0 6.267 0 6.267 6.468 0 0 0 0 0 6.468 12.7352010 0 0 0 0 0 6.374 0 6.374 6.578 0 0 0 0 0 6.578 12.9612011 0 0 0 0 0 6,482 0 6.482 6.689 0 0 a 0 0 6.689 13.1712012 0 0 0 0 0 6.592 0 6.592 6.803 0 0 0 0 0 6.803 13.3952013 0 0 0 0 0 6,704 0 6.704 6.919 0 0 0 0 0 6,CM9 13.623

2014 0 0 0 0 0 6,818 0 6.818 7.036 0 0 0 0 0 7.036 13.8552015 0 0 0 0 0 6,934 0 6.934 7.156 0 0 0 0 0 7.156 14.0902016 0 0 0 0 0 7.052 0 7,052 7,278 0 0 0 0 0 7.278 14.3302017 0 0 0 0 0 7.172 0 1.172 7,401 0 0 0 0 0 7.401 14.5732018 0 0 0 0 0 7,294 0 7.294 7.627 0 0 0 0 0 7.527 14,8212019 0 0 0 0 0 7.418 0 7.418 7.655 0 0 0 0 0 7,656. 15.0732020 0 0 0 0 0 7.544 0 7.544 7.785 0 0 0 0 0 7.745 15.3292021 o 0 0 0 0 7.672 0 7.672 7,918 0 0 0 0 0 7r918 15.5902022 0 0 0 0 0 7,803 0 7,803 8.052 a 0 0 0 0 8.052 1568662023 o0 0 o 7 35 8_-189 00 o o o 0 0 0 16 124i% oi 69,673 . 64.78718 16,174 16,304 58, 739 0 2 0 0 0 1 434.253

a 1 2 1 0." 3399 a ol -0 .121 20,091 44.5 X

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TAKE 9.6SANTA FE I WATER SUPPLY AND SEWERAE RITAEITATI PAOJECT

TOTAL OPERATION AND ANTENANCE COSTIn 010 US dol ars Juhof 19

DevekNiment IntAha____ ____ ___ SUPPLY D____'sSi I! TSSO - SEWERAGE PRO=ETww -I ., , .... w r_W I T . .................... Canc -:- Olw i: 0 yATEa cosf U_4 w ...... .... T ....199416 0 a o 15 0 40 0 0 0 0 40 54

1995 199 0 106 0 26 106 0 430 107 163 0 o 0 37 327 7071996 490 0 374 46 75 210 0 1,196 212 535 0 0 0 72 619 2.0151997 800 0 665 19 123 315 0 2.093 316 1,166 a 0 0 99 1,605 3.6es19ss 1,064 88 S50 367 189 423 0 2.960 427 1.837 0 0 0 110 2,373 5.3541999 1.301 239 939 367 272 532 0 3,660 53S 2,389 0 0 0 118 3.043 8,803200 1.499 244 1.245 367 354 643 0 4,351 650 2.997 0 0 0 123 3.770 6.122201 1 608 244 1,587 367 404 753 0 4.964 762 3.250 a 0 0 130 4.142 9I1062002 1.608 0 1.587 367 404 860 0 4.826 870 3,250 a 0 0 130 4.250 0.0762003 1 608 0 1,587 367 404 962 0 4,928 974 3.250 0 0 0 130 4.354 9.2822004 1 606 a i.587 367 404 1.05o 0 5,026 1.074 3.250 0 0 0 130 4.454 9.480200D 1.608 0 1.5s7 367 404 1.149 0 5.115 1.166 3,250 0 0 0 130 4.546 9.6612006 1 608 0 1.587 367 404 1.238 0 5.204 1.258 3.250 0 0 0 130 4.63S 9,6432007 1.608 0 1.587 367 404 1,329 0 5,295 1,352 3.250 0 0 0 130 4,732 10.8282006 1608 0 1.587 367 404 1.421 0 5,388 1,447 3,250 0 0 0 130 4.828 10.2162009 1 608 0 1.5s7 367 404 1.515 0 5,482 1,544 3.250 a 0 0 130 4.9M2 10.4072010 1.608 0 1o587 367 404 1.611 0 5s57s 1,643 3.250 a 0 0 130 5.023 10.601 CN201 1 1.608 0 1.567 367 404 i.706 0 5.675 1.743 3,250 0 0 0 130 5.124 10.7962012 1,60 0 1,587 367 404 1.,07 0 5.773 t.846 3.250 0 0 0 130 s.226 10.9992013 1,608 0 1.587 367 404 1.906 0 5,874 1.949 3,250 0 0 0 130 5,330 11.2042014 1.608 0 1.587 367 404 2,010 0 5.976 2.055 3.250 0 0 0 130 5.435 11.4112015 1,608 0 1.587 367 404 2.114 0 6.080 2.162 3,250 0 0 0 130 5.543 11.6232016 i 608 0 1.587 367 404 2.220 0 6.186 2.271 3.250 a 0 0 130 5.652 I 1.6382017 16108 0 1.587 361 404 2,327 0 6,294 2.362 3.250 0 0 0 130 5,763 12.0562018 1.608 0 1.567 367 404 2.437 0 6.403 2.495 3.250 0 a 0 130 5.876 12.2792019 1.608 0 1,587 367 404 2.548 0 6.514 2,610 3.250 0 0 0 130 5.990 12.5062020 1.608 0 1.587 367 404 2.661 0 6.627 2.727 3.250 0 a 0 130 6.107 12.7352021 1.608 0 1.587 367 404 2,776 0 6.743 2.846 3.250 0 0 0 130 6.226 12.9s62022 1.608 0 1.587 367 404 2.893 0 6,860 2.968 3.250 0 0 0 130 6,347 13.23062023 1 60s 0 1567 367 404 0 0 6.,979 3. 1250 0 a 0 130 6470 t3u410b% 10.574 429 9.769 1 2.458 1 0 20,244 o o 944 2, 62

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TABLE 9.6SANTA FE I WATER SUrrLY ANID SEWERAag REHAIUTATIM PRCJCT

TOTAL COSTSIn OS US dolbamn o f Juh 1ttiF

7~~~~~~~~~~~~~~tean* pt _ rouma Can Oitsr glWe dc6w UW"%-Snt_ Tmo t bor TOTAL -YOeveoom*ent Ian _ _ . - - _-_. - SUPPLY I t Dr s , T tim 4 . S&EWERAcE PROJECT

1994 1.05 a a 1.00 0 260 0 0 2.680 3,6841995 13,454 0 6,301 0 1,786 7,185 0 28,726 7.242 9.753 o 0 0 2.523 19.518 48.2451996 19.916 0 18.150 3.093 3.331 7,133 0 51.623 7.205 24,020 0 0 0 2,371 33.596 85.22D1997 21.4B0 0 20.069 9S737 3.313 7.331 0 61.931 7,410 44,704 0 0 0 1.914 54.028 115.9SS1998 18.63f 8a 13.126 12.225 4.589 7.587 0 56.246 7.671 45.076 0 0 0 814 53.562 109.8061999 17.086 6.113 6.923 367 5.n2 7.825 0 44,085 7,914 39.206 0 0 0 578 47.698 91.7842000 14.688 1O309 21,595 367 5.864 8.041 0 60,854 8,137 43.532 0 0 0 585 52.255 11I1082001 8.923 5S6 24.412 367 3.750 8.096 0 46.154 8.204 20.124 0 a a 592 28.921 75.0752002 1.608 0 15687 367 404 7.949 0 11.915 l .077 3.250 0 0 0 130 11,458 23.3732003 1.608 0 1.587 367 404 7.768 0 11.735 7,918 3.250 0 0 0 130 11.298 23.03320U4 1.608 0 1,587 367 404 7.556 0 11.522 7.727 3,250 a 0 0 130 11.107 22.6302005 1.608 0 1.587 367 404 7.113 0 11,080 7.314 3.250 0 0 0 130 106.94 21,742006 1.608 0 1,587 367 404 7.196 0 11,162 7,407 3,250 0 0 0 130 1o.787 21.950200 t.608 0 1,587 367 404 7.388 0 11.355 7.605 3.250 0 0 0 130 10.986 22.3402008 1.608 0 s.587 36? 404 7.584 0 1t.550 7.807 3.250 0 0 0 130 11.187 22n7372009 1 608 0 1.587 367 404 7.782 0 11.749 8,012 3.250 0 0 0 130 11.392 23.1412010 t.608 0 1.587 367 404 7,985 0 1 1.961 6.221 3.250 0 0 0 130 11.601 23562 2011 i.608 0 1,587 367 404 8.190 0 12.157 8,433 3.250 0 0 0 130 11.813 23.9702012 1 608 0 1.587 367 404 8.399 0 12.366 8.648 3.250 0 0 0 130 12.029 24.3952013 1.608 0 1.587 367 404 8.612 0 12.578 8.868 3,250 0 0 0 130 12.248 24.8272014 1.608 0 1,587 367 404 8,628 0 12,795 9.091 3.250 0 0 0 130 12.472 25.2662015 1t608 0 1.587 367 404 9,048 0 13,014 9,318 3,250 0 0 0 130 l2.69 25.7132016 1.608 0 1.587 367 404 9,272 0 13.238 9.549 3.250 0 0 0 130 12.929 26.1672017 1.608 0 1.587 367 404 9,499 0 13,466 9,784 3.250 0 0 0 130 13.164 26.6302018 1606 0 1.587 367 404 9, 30 0 13.69? 10,022 3,250 0 0 0 130 13.403 27.1W02019 1.608 0 1,587 367 404 9,966 0 13,932 10.265 3.250 0 0 0 130 13.646 . 27,5782020 1 608 0 1.587 367 404 10.206 0 14.171 10.512 3.250 0 0 0 130 13,893 28.0842021 1 608 0 1.587 367 404 10,448 0 14.415 1o.763 3.250 0 0 0 130 14.144 26.5682022 1 608 0 1,587 367 404 10.696 0 14.862 11.019 3.250 0 0 0 130 1i4.39 29,0612023 i.608 o 1_587 367 404 14.9! 0 4 _ 11278 3,2 0 0 130 2, 573-0-_ 80.247 9-074 7 4,487 - 1i17o 66,7,4 0 1 .5 4 , 2j204 i o 1 1 0 0 0 , ,

Xo0

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ANNEX 9

TABLE 9.7SANTA FE I WATER SUPPLY AND SEWERAGE REHABIUTATION PROJECT

AVERAGE INCREMENTAL COSTS OF WATER AND SEWERAGEIn USS of July 1993

STAGE LRAIC Lossw: [l Incremental incrmentai Incrmentalbetbre:oe adJustment capaclty i opeating total

____________ ___________ losset factor: cost coSt c sWATER SUPPLY SYSTEMWater Intake 0.09 1.00 0.09 0.04 0.13Transmission 0.07 1.01 0.16 0.04 0.20Treatment 0.02 1.02 0.18 0.04 0.22Distribution 0.02 1.10 0.20 0.04 0.25Connections 0.07 1.12 0.28 0.05 0.33TOTAL

SEWERAGE SYSTEMConnections 0.07 0.85 0.06 0.00 0.06Collectors and Interceptors 0.15 1.00 0.22 0.00 0.22Disposal of Untreated Sewage 0.00 1.00 0.22 0.00 0.22Sewage Treatment 0.00 1.00 0.22 0.00 0.22Final Disposal of Treated Sewage 0.00 1.00 0.22 0.00 0.22TOTAL

AVERAGE INCREMENTAL COSTSWATER AND SEWERAGE 0.55

1/ The Loss Adjustment Factor of 0.85 is applied for the sewerage system, at the connection stage,to allow charging sewerage users based on their consumption of water.

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ANNEX 9

WATER BALANCE IN THEE.A.A.B WATER SUPPLYSYSTEM

* SURFACE WATER + RESERVOIRS

TREATMENT.

WATER TREATMENT PLANTS 2.1%

TRANSMISSION LOSSES

RESERVOIR LOSSES 1 9

DISTRIBUTION NETWORK LOSSO 10.1%

DISTRIBUTION NETWORK l

14.9%

24 6% 60.3@h

I I. |/o COUERCAL LOSSES | WATER ILLED TO REENCE8,11.6% 13% COIMIERCE. NDUSTRY. AND PULIC

WATER CONSUMED |NATER CONSUMED ENTTIES.AND NOT BILLED Y ILLEGAL CONNECT

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- 100-

ANNEX 10

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 10 Financial Evaluation: Assumptions & Results

A. General.

1. Base Case Scenario: The financial analysis of EAAB performance over the next decade has beencarried out on the assumption that the entire Santafe I project will be financed in two phases, the first phaseBank loan for US$ 145 million as proposed, and the second phase loan for a propsoed US$ 105 millionprovided EAAB performance meets the targets and finacial indaicators discussed in Annex 14 (ActionPlan). The base case scenario under which the present financial analysis has been carried out, assumes thatEAAB will be able to effect tariff increase in real terms (both globally and in terms of structure changes)equivalent to 3% in 1996, and 2.5% each in 1996 and 1997. As this is the period of the mandate of thepresent Mayoral administration, tariff increases and structural changes that will be needed in future yearsto meet necessary investments and capacity increases in water and sewerage and waste water treatmenthave not been explicitly assumed for the base case. The base case assumes that EAAB will be able toachieve at least the minimum targets specified for UFW reduction and bill collection efficiency, ie. UFWdecreasing from the estimated 39.7% in 1994 to 29.5% by the year 2000. This target has been consideredto be more realistic and achievable than the UFW target specified in the PP, which assumes a drop to 20%by the year 2000. At the same time, the bill collection efficiency is assumed to increase from an estimated80% in 1994 to 92% by 2000, a target that is considered feasible and achievable. The improvementsobserved during the latter half of 1994, coupled with the introduction of proven commercial and financialaccounting systems provide grounds for this assumption. The tariff increases assumed to be effected underthe base case scenario are suffiecient to enable EAAB to meet the covenanted working ratio and quick ratiotargets. A sensitivity analysis of the robustness of EAAB's present fianncial situation and projectedfinancial performance under varying levels of performance improvements has been carried and is describedin para. 25 below. The base case scenario also incorporates the agreed terms of the first phase Bank loan(ie, 60% of the loan as a single currency fixed rate loan, and 40% as a single currency floating rate loan).The second phase loan is also assume to be effected on the same basis as the first.

2. Inflation Rates. The following inflation rates (%/o) were used, based on agreed economicparameters between the Government of Colombia and the World Bank, and consistent with the Bank'sguidelines on Expected Price Increases and Interest Rates dated October 1994.

1993 1994 1995 1996 1997 1998 1999 2000/ 2002 on2001

Local 21.00 22.16 18.00 16.00 14.00 12.00 10.00 9.00 8.00

Foreign -2.30 3.00 1.50 1.80 2.60 2.50 2.50 2.50 2.40

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ANNEX 10

3. Interest Rates. The following interest rates (%) were used based on the official Governmentestimates of the Colombian short term interest rate movements and on the Bank's guidelines on expectedchanges in the 6-month LIBOR rates:

j 1993 1994 1995 1996 1997 1998 on

US$ 6-month LIBOR 3.8 4.8 5.6 5.8 5.8 5.8

Col$ (DTF) 22.5 24.0 22.0 20.0 18.0 17.0

4. Exchange Rates. Exchange rates assumed are the official Government projections as of October1994.

1994 1995 1996 1997 1998 1999 2000 2001

Annual average 818 888 1002 1114 1220 1312 1390 1467

Year-end 831 946 1061 1171 1271 1354 1428 1507

B. Income Statements:

5. Water demand has been estimated to grow at a rate of 0.5m3/sec per year from the prevailinglevel of 17m3/sec. At that rate, EAAB would reach the end of its presently deliverable flow rate of25m3/sec by the year 2010. The EAAB Action Plan expects to establish 48,000 new connections per year(about 3% of existing customers) . The projections also include EAAB's program of elimination of anestimated 200,000 illegal connections over a seven-year period. Despite the optimism of the PP, the basecase financial projections take a more conservative view of reductions in unaccounted-for water (UFW),and only show a decline from about 40% in 1994 to about 30% by 2000, reaching a level of 26% by theend of the project in 2003. This matches the forecast assumptions in the economic analysis.

6. Revenue from water and sewerage services. EAAB has been authorized (Resolution of January1993) to increase its rates, until December 31, 1993, to its customers by 1.8% per month (23.8%annually) except for municipalities, for which the increase amounts to 2.40% per month (32.92%annually) up to a certain amount of water consumed which differs by municipality, after which the tariffswill be increased to an amount which will cover production costs. EAAB was authorized to increase thesewerage charge for industries (about 3,600 customers) from 50% to 60% of the water bill and forpolluting industries (estimated about 1,200 customers) from 50% to 100% effective September 1, 1993. Atthe end of 1993, EAAB was authorized to effect tariff increases of 1.89/o/month (23.8% annually) fromJanuary 1, 1994 on all classes of customers. In 1995, the monthly increase was set at 1.5% (annualinflation rate of 18%). Thereafter, it was assumed that rates would be adjusted by at least the inflationrate. Increases in tariffs in real terms were calculated on the base model to ensure compliance with theobjectives of the financial covenants on working ratio and the quick ratio targets. At the same time, thetarget tariff increases were designed to substantially reduce the negative net cash flows in the two criticalyears of the project implementation (1997 and 1998) when heavy investment outflows would overly taxEAAB's financial position, and to ensure the maintenance of a quick ratio of at least 1.1 in all the

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projection years. This analysis gave projected tariff increases of 3% in 1996 and 2.5% in each of the years1997 and 1998, to meet the working ratio targets of not more than 45% in each of the years 1996, 1997and 1998, and not more than 40% in each year thereafter and a quick ratio target of at least 1.0 in 1997 and1998, and of 1. i in each year thereafter. 6Table I shows the projected financial results including theassumption of the tariff increases in real terms. The proposed increases in real terms are considered to beacceptable in view of the improvements in service quality and in the reliability of the water system. Theproposed tariff study would determine the manner in which the tariff increases in real terms will beachieved, through a combination of structural adjustments and through absolute increases in the tarifflevels themselves. The tariff rates and structure will meet the criteria set forth in the Public Service Lawand ensure that the subsidization would be strictly limited to the levels specified ie. 50% for the lowesteconomic strata, 40 % for the next level and 15% for the next level). In accordance with the provisions ofthe Public Services Law, such subsidies should be explicitly provided by the Municipality; however, forthe purposes of the project analysis, no subsidy transfers were assumed to take place in the base case. Thiswas to ensure that EAAB's financial condition would remain robust under the most conservativeassumptions.

7. Other revenue includes sale of unproductive assets estimated at Col$ 3,000 million in 1993 andCol$ 1,500 million in 1994. Beyond that period, a small amount of other revenue based on the figure for1993 were maintained in constant terms.

8. Fondo Ambiental Charges represent surcharges on polluting industries and businesses that arecollected by EAAB and transferred to the CAR annually. They are estimated at US$2.0 million in 1994terms. As these collections are not part of EAAB's operating revenues, they are shown below the line andflow through the Funds Flow Statement as transfers to CAR.

9. Monetary Corrections are the net value of changes in the non-monetary accounts due to thechange in the monetary unit of value, i.e. the Colombian Peso adjusted for the annual certified rate ofchange in the Index of Domestic Inflation. These changes affect the following accounts:

Inventories: The value of the inventories is adjusted for changes in the monetary base at the end ofeach year.

Long Term Debt: The net value of foreign-denominated long term debt is adjusted and theadjustment carried through into the monetary correction.

6 Workine Ratio defined as Ratio of working expenses, prior to depreciation and interest charges, and including annualpayments to existing pensioners, payments into the EAAB Pension Fund, and annual transfers to external pension fundsunder Law 100 to operating revenues prior to subsidy transfers and extraordinary income (including income from excessliquidity balances)Ouick Ratio defined as the ratio of liquid assets (cash and bank balances and short-term investments readily convertibleto cash in three months) and 30% of accounts receivable to current liabilities due and payable within one year, includingloan amortizations due and payable.

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10. Connection charges. EAAB charges new customers the cost of the connection at the average rateof Col$ 150,000. The rate was kept constant in real terms.

11. Energy consumption was separated into the three main treatment plant components, i.e., Wiesner,Tibito and other, to account for the different levels of power consumption. From 1994 as through 1997,capacity utilization of the Tibito plant will increase as the increasing water demand will need to beprimarily met from the unused capacity at Tibito. There is a possibility that from 1998, Tibito may beoperated as a private concession. However, the base model does not take this possibility into account.

12. Chemicals were estimated as a function of production and the unit price of chemicals wasescalated at the above inflation rates.

13. Administration expenses for 1994 were taken from the 1994 budget and inflated thereafter. Thelarge escalation of 1994 with respect to 1993 is explained by the expansion of some expenses (e.g.,insurance) from depressed to normal levels as a result of the solution of EAAB's financial crisis in 1993and 1994.

14. Repairs and Maintenance is broken down between civil works (80%) and electromecanicalequipment (20%). Civil works will gradually increase the amount ofthis cost item from 0.5% oftotalgross fixed assets in 1994 to 1% in 1998. Electromechanical equipment will increase from 1% of grossfixed assets in 1994 to 3% in 1998.

15. Write Offs represent the value of fixed assets written off as the rehabilitation program isimplemented. The residual value of the Tibito plant and the Tibito pipelines are also written off as thecorresponding improvements/reconstruction are completed.

16. New investment module as of year 2002. We assume that a second Sante Fe project will start in2002. It will have exactly the same profile as the Santa Fe I project, which entails: the same amount ofcapital expenditures (in 1993$) distributed through the years 2002-2005 as the Santa Fe I was distributedthrough 1994-2001. This project will be financed with intemal cash generation, which will beaccumulating in adequate amounts to face this financial burden. In addition to the above, the modelincorporates investments in development of proposed new water sources starting in 1997, to enable EAABto meet the projected demand in the years after 2003. EAAB's consultants have estimated the optimumsequencing of the investments and this has been incorporated in the model. The financing is assumed tocome from a mixture of debt and EAAB's own cash generation. The benefits of the potential hydro-powergeneration implicit in the source development program could provide an additional means of funding theneeded investment costs. However, for the purposes of the analysis, such potential benefits and possiblefinancing support was ignored. Other investments include annual renewals at around 5% of the gross fixedasset values.

17. Personnel. In 1994, EAAB reduced staff size to 2500. It is expected that this will decline furtherto 2400 in 1996 and remain at that level thereafter. Average salaries were inflated at the local inflation ratestarting in 1994.

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C. Flow of Funds & Balance Sheet

18. The 1993 Balance sheet figures were taken from the audited results. The 1994 figures areunaudited.

19. Fixed assets. The Santafe I investment program described in Annex 7 and estimated in Annex 8was taken as the basis for the projections. Under its new status as a government-owned industrial andcommercial entity, EAAB is authorized (Decrees 2077, 2075, 2911 and 29112) to revalue monthly itsfixed assets and inventories using the Colombian consumer price index. The 1993 audit has effectedcorrections in EAAB's revaluation methodology to meet the Colombian regulations in this regard. The1994 figures show some minor adjustments in this regard.

20. The fixed assets were adjusted for inflation as follows;

* fixed assets in operation: the balance at the beginning of the year was revalued according tothe full annual local inflation rate and the additions at one-half the annual local inflation rate:

* construction in progress was revalued as fixed assets in operation; additions andcapitalizations were revalued at one-half the annual local inflation rate;

* depreciation: the balance at the beginning of the year was revalued according to the fullannual local inflation rate; the annual depreciation charge was calculated at the averagedepreciation rate of 3% applied to the revalued gross fixed assets in operation at the end of theyear; the annual depreciation charge was not revalued.

21. Pension Liabilities and Related Issues: As of December 31, 1994, EAAB had an actuariallyestimated unfunded liability on account of its employees' retirement plan amounting to Col$ 360 million(about US$ 420 million). In accordance with its PP, EAAB is obliged to set up a Pension Fund to coverthe pension payments to all future retirees who do not opt for coverage under Colombia's new SocialSecurity Law (Law 100), but instead stay on under the existing union agreement. The existing retireescould also be paid out of such a Pension Fund. As part of the Performance Plan agreement with theNational Government, EAAB has already established the Employee Pension Fund in 1994. During 1995,EAAB will make other mandated changes in its treatment of future pensioners to comply with the recentlyenacted Colombian law on Social Security ( Law 100 of 1993). EAAB will continue to service pensions toits existing pool of pensioners (approximately 1250) directly out of its annual operating revenues and usethe revenues accruing in its Employee Pension Fund to partially offset use of its cash flow for this purpose.EAAB will need to continue its present practice of using its annual cash flow to cover the pension paymentobligations. At the same time, if there are excess cash reserves due to improved bill collection, favorableinvestment retums on excess cash balances and other extraordinary events, EAAB will continue to increasethe corpus of the Employee Pension Fund in order to provide an additional source of supplementary cashflow to cover its pension payment obligations in particular years. EAAB will begin to contribute its shareof social security and medical fund contributions to the State Social Security scheme (or to altemativeprivate pension funds that are authorized to receive such contributions on the basis of individual employeeelections under provisions of the Social Security Law). EAAB will also become liable to transfer the entireactuarial liability balances including accrued interest charges to the State Social Security Scheme or to

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authorized alternatives when employees retire after December 31, 1995. As these liabilities are currentlyunfunded (and only partially provisioned), EAAB will need to use its cash flow to effect these transfers.The forecast financial statements reflect the provisions as outlined above, and take into account theincreased cash outflows that will be required. EAAB's pension liability will be fully provisioned withinseven years as required by new Colombian accounting rules. The cash flow arising from the annualprovisioning will more than amply cover EAAB's cash requirements to meet the present and future pensionpayment obligations. As EAAB's pension liabilities remain largely unfunded, it is essential that water andsewerage rates cover the annual cash flow requirements in this regard. The definition of the working ratiotherefore includes this requirement to ensure that tariff increases provide the adequate cash flow to EAABto meet these essential needs. The balance in the Pension Reserves is net of annual amortizations ofaccrued pension liabilities due to pensioners leaving EAAB's pension plan , additions and reductions innumbers of pensioners and estimated actuarial liabilities outstanding at each year end.

22. Other Long Term Assets include the long term, portion of the amounts due from the EEB inrespect of its share of the financing of the Chingaza project, the short term portion being included in thevalue of other receivables (see para 21 below). This rubrique also includes the long term portion ofemployee loans for housing.

23. Current assets were estimated as follows:

* Cash balances were estimated at 15 days each of cash operating expenses and investmentexpenditures.

- Receivables were calculated separately for government (central and District) and non-government. The December 31, 1994 receivables from government and non-government of 77days of annual billings were adjusted each year to comply with the Action Plan targets. Thereceivables include the estimated billings for the last two months of each year, which are sentfor collection in January of the following year.

- Other receivables comprise mainly (approximately 70% of the amount) payments due fromthe Electric Supply Company of Bogota (EEB) on account of its contribution to the financingof the Chingaza project. The current portion of the long term obligations due from EEB areincluded under this category. In addition, non-trading receivables from other entities and fromemployees real estate loan payments due within one year are included. The amount of theother receivables is projected to increase at the inflation rate.

* Inventories were calculated at 3 months of consumption of chemical products. Annualadjustments of inventory values in line with inflation were made to comply with the Colombianaccounting regulations.

* Other current assets comprise the net value of amounts due from or owed to other entities onaccount of transfers of staff and their corresponding pension benefits, as well as the short termportion of the monetary value of accumulated leave benefits (Cesantias). From 1995, theyalso include the anticipated payments due from the District Government under Ley 60 transfersfor the funding of the Santafe I program. The amounts shown in the financing plan are

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expected to be paid in installments, and the unpaid installments at the end of each year(estimated at 25% of the total amounts due each year) are included in the figure shown underthis rubrique.

24. Current liabilities were estimated as follows:

* Suppliers. The estimated balance of Col$ 33,207 million as of December 31, 1994, wasseparated into its component and projects as follows:

* Col$ 15,367 million due on account of payments to EAAB was adjusted for the level of powerconsumption annually, and maintained at approximately three months of payments due.

* Col$ 16,399 million accrued interest was projected at 3 months of annual interest charges.

* Col$ 1,441 million due to normal operations were projected at 2 months of cash operatingexpenses excluding salaries.

* Contractors were calculated at 2 months of investment expenditures.

* Other payables. The balance at December 31, 1994, was increased by the inflation rate.

* Current Portion of L-T Liabilities. These include the current portion of long-tern debt aswell as the current portion of EAAB liabilities to Employee benefits, mainly the terminationand accrued leave benefits (Cesantias) which are projected to increase in line with inflation andadjusted for the size of the labor pool.

25. Long-term debt: The financing and amortization of debt are calculated in the model in line withamortization tables furnished by EAAB.

26. The Projected Flow of Funds and Balance Sheets are shown as tables 2 and 3 respectively. TheWorking capital table is shown as Table 4.

27. Table 5 shows a set of indicators and ratios of financial performance including the current andworking ratios, debt-service coverage and indicators of personnel expenses, financing mix and revenueparameters.

D. Sensitivity Analysis

28. A sensitivity analysis has been carried out under various scenarios of performance improvementand of failure to achieve the forecast levels of operating performance. The primary objective of thesensitivity analysis was to demonstrate the basic robustness of EAAB's financial situation following thefinancial restructuring and bailout implemented by the National Government in 1993 and following

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EAAB's organizational transformation carried out in the past year. While, further organizational andmanagerial improvements are needed to sustain the reform effort, the sensitivity shows that even underunlikely scenarios of failure to achieve even a modicum of improvement in its operational performance andof failure to enact tariff changes, EAAB's financial situation is weakened but nonetheless sufficientlyrobust for the purposes of implementing the Santafe project as defined. Action of future investments inwater source development and on expansion of the system beyond the completion of the Santafe I projectmay need to be postponed in the event of continuing non-compliance with the forecast levels ofperformance. However, for the present, EAAB's financial situation is sufficiently robust to withstand aprolonged period of insufficient cash flow from operations. In the worst case scenario, it is also assumedthat the proposed second phase Bank loan will not matenralise. EAAB, even under such a scenario will beable to complete the various planned investments under the Santafe I project. The results of the sensitivitytest are summarized in Table 6. While tariff increases are critical to achieving the covenanted financialratios, the sensitivity of EAAB's cash flow and its consequent ability to meet the investmnent requiremnentsof the Santafe I project is low, because of EAAB's exceptionally advantageous cash position prior to startof implementation of the Santafe I project.

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COLOMBIA

EMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESPSANTAFE I WATER AND SEWERAGE PROJECT

Table 1: Income Statements(current ColS million)

< --- Audited----- ---------------- --------------- ------ Forecast --- ------------------------ --- ----o-e---t------------------ ----------- --_1993 1994 19 196 1997 1998 1999 2000 2001 2002 2003 2004 2005

REIVENUESFrom Water Sales - Water 74,598 95,006 119,350 146,030 174,252 203,791 235,440 269,472 305,815 343,667 383,735 428,096 477,189

- Sewerage 33,515 46,794 58,784 71,925 85,826 100,375 115,963 132,725 150,625 169,269 139,004 210,853 235,033Subtotal 108,113 141,800 173,134 217,956 260,077 304,166 351,402 402,198 456,440 512,936 572,739 638,949 712,222

Connection fees 3,787 7,090 6,527 7,603 8,704 9,789 10,814 11,819 9,307 9,114 9,885 10,722 11,629Reconnection fees and fines 1,321 3,390 4,000 4,640 5,290 5,925 6,517 7,104 7,743 8,362 9,031 9,754 10,534

TOTAL OPERATINGREVENUES 113,221 152,280 18,662 230,199 274,071 319,880 368,733 421,121 473,489 530,413 591,656 659,425 734,385

OPERA TING EXPENSESPersonnel Costs 24,211 27,180 30,462 36,802 42,371 47,926 53,243 58,596 64,470 70,302 76,641 83,551 91,085Pensions Paid 9,097 12,675 18,833 20,122 22,683 24,904 26,737 28,302 29,326 31,232 32,611 34,040 35,512Power 5,735 8,272 11,360 13,045 13,741 14,401 15,495 13,247 20,951 23,454 26,194 29,271 32,725Chemical! 1,401 2,063 2,365 3,275 3,402 3,519 3,744 4,425 5,085 5,685 6,340 7,075 7,W93Operation and maintenance 3,963 6,422 8,100 9,503 10,965 12,874 15,065 17,673 20,589 23,319 25,874 28,44 31,24Administrative and other 5,650 9,665 4,797 5,564 6,343 7,105 7,815 8,518 9,285 10,028 10,U30 11,696 12,632Concession Payments 0 0 0 0 0 0 0 0TOTAL WORKINGEXPENSES 50,057 66,277 76,418 88,312 99,505 110,729 122,100 135,762 150,206 164,021 178,490 194,080 211,099 1Income before Depreciation 63,165 86,003 112,244 141,837 174,566 209,151 246,633 285,358 323,284 366,392 413,166 465,345 523,236 _Less: Provision for Pensions 38,086 73,866 126,183 108,903 113,042 116,674 125,756 130,153 66,802 62,389 50,668 59,538 55,958 OLess: Depreciation Charge 7,395 9,138 23,156 31,312 40,195 50,946 62,621 77,209 94,805 109,459 125,564 142,425 161,249Write ofTs 0 0 0 9,063 44,697 5,031 0 0 0 14,950 7,286 7,789 0NET OPERATING INCOME 17,683 -2,001 -37,095 -7,390 -23,368 36,500 58,256 77,997 161,677 179,593 229,648 255,592 306,079Interest Expense 23,095 28,446 28,486 32,231 37,485 43,463 44,153 58,010 65,362 67,845 65,692 65,587 68,311Prior Period Adjustments -16,517 17,066 -0 -0 0 0 0 0 -0 -0 -0 0 0Valorixation Revenues 14,D31 14,531 14,531 14,531 14,531 14,531 14,531 14,531EAAB Pension Fund Income 0 655 1,370 1,721 2,068 2,350 2,679 3,146 3,434 3,900 4,402 4,944Net Other Income .2,192 3,142 1,891 1,635 1,671 1,937 2,442 3,035 3,402 3,648 3,745 3,761 3,706NEI'INCOME bef Moidary Correction -24,121 -10,240 -63,035 -36,617 -57,461 11,573 33,426 40,231 117,393 133,360 186,132 212,700 260,949Monetary Correction 52,160 18,634 51,149 62,031 67,119 69,466 73,301 37,347 106,531 116,171 130,904 141,716 153,053Revaluation of Fixed Assets -138,031 -34,114Fondo Ambiental Charges Collected 0 0 1,893 2,120 2,343 2,542 2,707 2,856 3,013 3,149 3,290 3,438 3,593NET INCOME -109,92 -25,720 .9,"3 27,535 12,001 83,580 109,434 130,433 226,938 252,679 320,326 357,854 417,595

Working Ratio (%) 44 44 44 45 43 40 39 39 38 37 35 34 32Opersting Ratio(%) 4 101 120 103 109 89 84 81 66 66 61 61 58Rate of Return on Average Revalued NetFixed Assets in Operation (%) 2.2 -0.2 -4.1 -0.7 -1.8 2.4 3.3 3.7 6.7 6.5 7.5 7.7 8.5

20-Oct-9S

X

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COLOMBIAEMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP

SANTAFE I WATER AND SEWERAGE PROJECTTable 2: Flow of Funds Statements

(current CoIS mndPon)- Audited- Forecast1993 1994 1995 1996 1997 199S 1999 2000 2001 2002 2003 2004 2005

SOURCESFROM OPERA TIONSNet Operating Income 17,683 -2,001 -37,095 -7,390 -23,368 36,500 5,256 77.997 161,677 179,593 229,648 255,592 306,079ValorizatIon Revenues 0 0 0 0 0 14,531 14,531 14,531 14,531 14,531 14,531 14,531 14,531

Fondo Ambiental Charges Colected 0 0 1,893 2,120 2,343 2,542 2,707 2,856 3,013 3,149 3,290 3,438 3,593Non-Cash Charges & TransfersDeprecation 7,395 9,138 23,156 31,312 40,195 50,946 62,621 77,209 94,05 109,459 125,564 142,425 161,249Transfer to Reserves fo Pension LiablYties 38,086 78,866 126,183 108,903 113,042 116,674 125,756 130,153 66,802 62,389 50,668 59,538 55,95SOthr Non-Cash Adjustnents 34,901 0 0 -0 -0 -0 -0 0 0 0 -0 -0

NETFUNDS FROM OPERA TIONS 63,165 120,904 114,137 134,945 132,212 221,193 263,S71 302,745 340,828 369,122 423,701 475,525 541,410BORROWINGSGovernment Refinancing 14,095 26.576 29,990 30,804 31,994 0 0 0 0 0 0 0 0Sante Fe I Domestic BorrowingpOther Domesic Borrowings 27,664 6,349 2,975 0 0 0 0 0 0 0 0 0 0world Bnk Sante Fe I Phase I 0 0 10,602 21,029 49,975 53,162 26,943 2,716 1,700 0 0 0 0. srld .ank Sante Fe I Phase 2 0 0 0 0 0 0 30,255 57,226 47,742 12,663 0 0 0

Sane Fe I Other sernal Borrowings 0 0 2,644 6,695 11,721 11,724 4,366 5,690 4,095 0 0 0 0Other Eernal Brrs-rIngs 4,268 6,892 33,389 19,355 21,245 49,787 68,921 75,273 85,909 5,179 45,435 113,225 157,463

TOTAL BORROWINGS 46,027 39,818 79,599 77,83 114,936 114,673 130,485 140,904 139,446 17,842 45,435 113,225 157,463EQUITY TRANSFERS A COATRIBUTIONS

Customer Contributlon 28,977 6,312Subsidy Irrnsftrs from LEY 142 0 0 0 0 0 0 0 0 0 0 0Transmfrs from LEY 60 0 7,957 12,839 17,593 24,196 32,590 40,513 8,244 0 0 0 0

TOTAL EQLITY TRANSFERS'CONTRIBUTION 28,977 6,312 7,957 12,839 17,593 24,196 32,590 40,513 8,244 0 0 0 00OTIIER SOURCES \°

Pension Fund Income 0 655 1,370 1,721 2,068 2,350 2,679 3,146 3,434 3,900 4,402 4,944Non-Operating Income -2,192 3.142 1,891 1,635 1,671 1,937 2,442 3,035 3,402 3,648 3,745 3,761 3,706Concesion Financing 0 0 0 0 0 0 0 0 0 0 0 0Other (Net) 964 7.894 -560 722 23 398 165 289 255 261 290 308 336

TOTAL OTIlER SOL'RCES -1,229 11,036 1,985 3,727 3,415 4,404 4,957 6,003 6,803 7,343 7,935 8,472 8,986TOTAL SOU'RCES 136,940 178,070 203,679 229,395 268,154 364,465 431,902 490,165 495,321 394,306 477,071 597,222 707,858

APPLICA TIONS

DEBTSERF7CEPrincipal Repayments 32,642 29,263 30,677 31,239 35,235 50,925 76,057 65,064 80,229 89,473 105,133 125,891 137,518

Interest Charges 23,095 28,446 28,486 32,231 37,485 43,463 44,153 58,010 65,362 67,845 65,692 65,587 68,311

TOTAL DEBT SERVICE 55,737 57,710 59,163 63,470 72,720 94,388 120,209 123,075 145,591 157,318 170,825 191,477 205,823iNVESTMENTSSanta Fe I Projdet 0 3,843 36,263 93,S12 132,229 134,696 116,443 154,905 100,622 0 0 0 0

Other Investments 28,222 32,265 50,442 46,541 32,963 26,969 96,536 122,638 138,623 156,651 34,065 69.470 104,003Inc(Dec)in Other LT Assets 1,371 24,285 7,912 198 3,552 -523 1,243 2,338 .2,229 1,125 193 2,398 3,736Net tcrease In EAAB Pension Fund Assets 5,300 5,505 1,670 2,074 2,279 2,285 2,311 2,500 2,448 2,628 2,833 3,062

TOTAL INbESTMENTS 29,593 65,693 100,122 142,222 170,818 163,421 216,508 283,192 239,516 160,223 36,886 74,701 110,801

OTHER PA YMENTS A TRANSFERSTransfers to FondoAmbentai 0 0 1,893 2,120 2,343 2,542 2,707 2,856 3,013 3,149 3,290 3,438 3,593Transfers to External Pension Funds (Ley 100) 7,346 15,797 17,969 16,083 21,763 29,477 30,561 32.438 26,079 27,702 25.1 12

TOTAL PA YSEENTS & TRANSFERS 0 0 9,239 17,917 20,312 18,625 24,470 32,333 33,574 35,586 29,369 31,141 28,705

WORKING CA Pi TA L EEDS 16,056 6,421 29,S16 2S,450 578 1,S21 S,529 -8,689 -5,609 2,085 13,005 2,386 10,414

TOTAL APPLIC'A TIONS 101,386 129,S24 198,339 252,059 264,427 278,255 352,658 434,911 413,072 355,213 250,085 305.705 355,748

CA SIl StRP LUS (DEFICI 1) 35,554 4S,246 5,339 -22,665 3,728 86,210 79,245 55,254 82,249 39,093 226,9S6 291,517 352,110Accumulated Cash Surplus/(Deficit) 35,554 83,799 S9,138 66,474 70.202 156,412 235,656 290,910 373,159 412.252 639,238 930,755 1,282,865

Self-Financing atio.() 25 96 55 52 38 8S 66 62 82 132 686 300 303

20-Oct 95

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COLOMBIAEMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP

SANTAFE I WATER AND SEWERAGE PROJECTTable 3 Balance SheeU(current CoIS million)

- Audited-> < Forecas-1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

ASSETSFIXED ASSETSGross Fined Assets (inflationadjusted) 1,136,125 1,205.166 1,380,885 1,596,813 1,821,725 2,115,357 2,452,520 2,853,649 3,302,251 3,722,352 4,115,471 4.511,042 4,941,919Less: Accumulated Depreciation 196,606 239,857 263,014 285,263 280,761 326,676 389,297 466,506 561,312 655,821 774,099 908,735 1,069,983Net Fined Asset.. (inflationadjusted) 939,519 965,308 1,117,871 1,311,550 1,540,964 1,788,680 2,063,223 2,387,142 2,740,940 3,066,532 3,341.373 3,602,307 3,871,936Work i Progres- 102,741 123,869 144,404 191,454 237,008 262,088 307,155 378,661 397,651 355,428 251,574 206,369 198,625

Total Re-ulued Net Fied Assets in Use 1,042,260 1,089,178 1,262,275 1,503,005 1,777,972 2,050,768 2,370,378 2,765,804 3,138,591 3,421,960 3,592,946 3,808,676 4,070,561Long-Terr Asse.s 12,875 37,551 45,463 45,661 49,213 48,690 49.933 52,272 50,043 51.168 51,361 53,759 57,495EAAB Pension Fund Assets 5,300 10,805 12,476 14,550 16,h28 19,113 21,424 23,924 26,371 28,999 51,832 34,894

TOTAL FIXED ASSETS 1.055,135 1,132,029 1,318,544 1,561,142 1.841,735 2,116,297 2,439,425 2,839,499 3,212,557 3,499,499 3,673,307 3,894,267 4,162,950CURrENATASSETS

Cash & Banks 4,550 4,830 6,632 9,098 10,394 10,671 9,061 10,638 11.610 12,775 8,577 10,308 12,198Ie-esimens& Surplus Cash 35,554 h3.800 89,139 66,474 70.202 156,412 235,657 290,910 373,160 412,253 639.239 930,756 1,282,865

Net Accouns Receisble, W&S ser-es 45,888 73.361 93,231 108,234 116,096 116,222 109,070 98,934 96.022 98,503 104,515 113,303 124,297Other Rece-wables 14,925 19,389 22,879 26,539 30,255 33,885 37,274 40,628 44,285 47,828 51,654 55,786 60.249t-oeelorie, 17,704 7.487 9,305 10,570 11,377 10,292 11.350 13.012 14,955 16,601 18.307 20.050 21,943Other C .r.e.t AssesL 341 1,202 1,200 18,235 14,999 18,575 14,660 20.021 19,567 20,828 23,372 25,270 28,056

TOTAL CLRREATA4SSEIS 118,962 190.068 222,387 239,150 253.324 346,057 417,071 474,144 559.599 608,788 845.664 1.155,473 1,529,609TOTAL ASSETS 1,174,097 1.322,097 1.540.931 1,800,292 2,095,058 2,462,344 2.856.496 3,313,643 3.77m.156 4.108,287 4.518,971 5.049,741 5,692,559

EQUITY T LIABIL- TIESEQCITY:

Intial Equity 335 335 335 335 335 335 335 335 335 535 335 315 335Subsidies under LEY 142 0 0 0 0 0 0 0 0 0 0 0 0Other Equity Contributions (itct LEN 60) 63,020 69.332 77,289 90,128 107,721 131,917 164.507 205,019 213,264 213,264 213,264 213,264 213,264Acc-tut-ted E-rnings 38,290 28.050 -34.985 -71.601 -129,062 .117,490 -84,064 43,833 73.560 206,920 393,053 605,752 866,702Ac-sulatled Monetary Correction 52,160 70,794 121.943 183,974 251,093 320,559 393.860 481,206 587,737 703,908 834,812 976,528 1,129,581Reserce for-Recuation ofAs-at 639.665 647.396 675,940 709.511 749,888 797,915 852,247 912.485 986,822 1,065,921 1,157,833 1,264,984 1,389,297TOTAL EQUITY 793.470 815,907 840,522 912,347 979,975 1,133,236 1,326,885 1,555,212 1,861,719 2,190,349 2,599,297 3,060,863 3,599,178

LIABILUTIESLONG TERM LIABILIrIESReser-. for Pension Liability 122,711 201,444 320.280 413,387 508,460 609,051 713,045 813,721 849,961 879,913 904,502 936,338 967,184Other Long.-Term Liabilies 1,733 2.032 1.472 2,195 2.218 2,616 2,781 3,070 3,325 3,585 3,875 4,184 4,519LonygTerm Debt: -Foreign 124,517 121.719 164.771 208,305 287,534 396,537 527,581 666,141 794.704 787,700 793.948 849,989 943,385

Local 83,941 110.530 146,763 186,044 228,954 228,074 192,880 171,686 149,974 126,265 100,119 71,364 39,818Tual Lang-Term Debt 208,458 232,249 311,534 394,349 516,488 624,611 720.462 837,827 944,678 913,965 894,067 921.353 983,202Less Current Portion 27,106 30,677 31,239 35,235 50,925 76,057 65,064 80,229 19,473 105,133 125,891 137,518 389,094Total Net Lang-T.rm Debt 181,352 201,572 280,295 359,114 465,563 548,554 655,397 757,597 855,205 308,832 768,176 783,835 594,108TOTAL LONG TERM LIABILITIES 305.797 405,048 602,047 774.696 976,241 1,160,221 1.371.223 1,574,388 1,708,491 1,692,330 1,676.553 1,724,356 1,565,811CURRENT LIABILITIESShrt-Ter-sPuortion ofLT Libiitities 29,706 33,725 35,522 39,717 56,318 81.965 71,660 87,380 97,289 113,579 135.009 147,367 399,731B.nk O,erdrnfts 0 0 0 0 0 0 0 0 0 0 0 0 0Suppliers 12,307 17,078 17,610 18,434 19,386 17,717 16,898 16,777 17.203 17,943 18,947 20.217 21,770Contractors 5,656 7,491 6,897 10,837 12,496 12,115 7,946 9.962 10,704 11,882 2.280 4,442 6,805Other Current Lihbilities 27,181 42.847 38.330 44,260 50,642 57,089 61,884 69,924 76,750 82.204 86,385 92.495 99,264

TOTAL CURRENVT LABIliTIES 74,829 101,142 98,359 113,247 138,842 168,885 158,388 184,042 201,946 225,607 243,121 264,521 527.570TOTAL LABILUTlES 380,626 506.189 700,407 887,943 1,115.083 1,329,107 1,529,610 1.758430 1.910.436 1,917.938 1.919,674 1,988,878 2,093,382TOTAL EQUITY & LIABILITIES 1,174,096 1.322,097 1,540,929 1,800,290 2,095,058 2,462,343 2,156.495 3,313,643 3,772,155 4,108.287 4.518,971 5.049,741 5,692,559

L.ag.T-rm Debt / Equity plus L-T Debt (1) 19 20 25 28 32 33 33 33 31 27 23 20 14Current Ratio 1.6 1 9 2.3 2.1 1.8 2.0 2.6 2.6 2,J 2.7 3.5 4.4 2.9Quick Ratio 0.8 1.2 1.4 1.1 1.0 1.3. 1.9 1.9 2.2 2.1 2.9 3.3 2.6

20-Oct-95

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COLOMBIAEMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP

SANTAFE I WATER AND SEWERAGE PROJECTTable 4: Working Capital Schedule

(current CoIS million)1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 2003 2004 2005

BillCllectionEficEkney(%) 65 80 80 82 85 87 90 92 92 92 92 92 92Bill Colletion Efficency (Plan Dbempeno Targt 70 75 80 85 90 92 92 92 92 92 92 92 92Customer Accounb Refeivable (as days of AnnualOperating Revenues) 165 181 186 177 159 136 111 88 76 69 66 64 63CURRENTASSETSCash (needs) 4,550 4,U30 6,632 9,098 10,394 10,671 9,061 10,638 11,610 12,775 8,577 10,308 12,198Custmer Accounts Receivable (Water & Sewer, no 39,822 57,396 72,942 84,680 90,831 90,930 85,334 77,404 75,125 77,066 81,770 88,646 97,247Custmer Accounts Reivable (Waqter & Sewer, 11,544 18,337 23,303 27,053 29,018 29,050 27,262 24,729 24,001 24,621 26,124 28,320 31,068Reserve for uncollectibles -5,477 -2,372 -3,014 -3,499 -3,753 -3,757 -3,526 -3,198 -3,104 -3,184 -3,379 -3,663 -4,018Other receivables (non-trading accounts) 14,925 19,389 22,879 26,539 30,255 33,885 37,274 40,628 44,285 47,828 51,654 55,786 60,249Inventories (Net of Provisions) 10,521 6,326 7,203 8,279 9,091 8,827 10,048 11,667 13,428 15,039 16,588 18,168 19,889Imports in Transit 39 282 716 819 851 238 272 296 323 349 376 407 439Inflation Adjustment, Inventories 7,144 879 1,387 1,472 1,436 1,227 1,031 1,049 1,204 1,214 1,343 1,475 1,615IBRD Loan Withdrawals due 0 598 9,664 4,687 5,510 0 3,160 0 0 0 0 0Other Current Assets 341 1,202 602 8,571 10,313 13,065 14,660 16,860 19,567 20,828 23,372 25,270 28,056

TOTAL CURRENT ASSETS U3,408 106,269 133,248 172,676 183,122 189,645 181,414 183,234 186,439 196,535 206,425 224,718 246,744Change in Inflation Adjustment for year 7,144 -6,265 508 86 -36 -209 -196 19 155 9 129 133 140CURRENT LIABILITIESBankoverdrafls 0 0 0 0 0 0 0 0 0 0 0 0 0Accounts PayabletoEEEB 9,754 15,637 15,511 15,977 16,559 14,432 13,103 12,390 12,157 12,276 12,689 13,35S 14,258lnterestDueandpayable 11,032 16,399 7,121 8,058 9,371 10,866 11,038 14,503 16,341 16,961 16,423 16,397 17,078Suppliers 2,553 1,441 2,100 2,457 2,827 3,285 3,795 4,386 5,046 5,667 6,258 6,S59 7,512Contractors S,656 7,491 6,897 10,U37 12,496 12,115 7,946 9,962 10,704 11,882 2,280 4,442 6,805Other Payables 16,129 26,448 31,209 36,202 41,271 46,223 S0,86 55,422 60,410 65,242 70,462 76,099 82,17TOTAL CURRENT LIABILITIES 45,124 67,416 62,837 73,531 82,524 86,921 86,728 96,663 104,657 112,0t9 108,112 117,154 127,839

Working Capital 38,2U4 38,853 70,411 ",145 100,598 102,724 94,687 86,571 81,782 U4,507 98,314 107,563 118,904Net Cbanges in Working Capital 16,035 6,834 31,050 28,649 1,489 2,336 -7,842 A,134 -4,944 2,715 13,678 9,117 11,201

0

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COLOMBIAEMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP

SANTAFE I WATER AND SEWERAGE PROJECTTable 5: SfUsUcs & Itndkor

193 1994 19 19ff 1997 199 199 2000 2001 2002 2003 2004 2005

cP Ban 19"3 10 122 14 171 196 222 24 270 294 319 344 372 402PopulatDo ('000) (Boota & Entwros) 6,586,286 7,078,521 7,269,143 7,464,"7 7,666,232 7,872,99 S,0S5,454 s,303,759 8,512,606 3,710,947 3,897,763 9,072,073 9,232,93Populam Served (00) 5,853,343 6,250,334 6,448.420 6,651,956 6,861,09 7,075,998 7,296,S25 7,523,745 7,743,194 7,954,200 8,155,812 8.347,110 8,527.210Walerprod-ded(Mn3) 556 567 5S 584 579 571 582 59 611 620 628 636 645Water sad(Mm3) 33S 340 357 365 372 377 394 414 431 446 460 474 488

UnacBxut_ed forwater(%) 3S 40 39 37 36 34 32 31 29 28 27 25 24Coannetions ('000): Water S66 917 1,015 1,08o 1,156 1,227 1,299 1,370 1,432 1,481 1,528 1,575 1,622

Seweage 832 SS0 974 1,042 1,110 1,178 1,247 1,315 1,374 1,422 1,467 1,512 1,557Service3evel(%pop.svd):Waer S5% SS% 89% 89%A 89% 90% 90% 91% 91% 91% 92% 92% 92%

Sewrage 82% S5% 86% 86% S7% 87% 87% 88% 88% 89% 89% 90% 90%Realdent al consusuptio/caplia(ltrs/day) 157 150 144 138 133 128 127 126 126 126 126 126 126Number of Emplyes 2,853 2,u5 2,440 2,400 2,400 2,400 2,400 2,400 2.400 2,400 2,400 2,400 2,400EmployeaIl000 connedtos 3.29 2.73 2.36 2.21 2.08 1.9 1.35 1.75 1.6" 1.62 1.57 1.52 1.48A,ge.rovmJ.3 water soId(incL bulk saks):ColS 320 416 4S 597 700 306 891 972 1,053 1,150 1,245 1,348 1,458

I993 CoS 320 343 342 350 356 363 362 360 360 361 361 362 363A,g.Persood CosUSn3Sdd:ColO000 n 117 138 156 175 193 203 210 219 228 238 248 259

I993 CoIS 000 n 96 95 91 89 87 82 78 74 71 69 67 65AvgyPerse,e CoxUConn. CoS oeo 3S 43 49 52 56 59 62 63 66 69 72 75 78

I"3 CoS 000 38 36 33 31 29 27 25 24 22 21 21 20 19Avg.Op.Coet-PersIin3 SoId:CIS 000 71 S9 12S 153 178 209 237 270 310 341 373 406 441

1993CS000 71 811 SS S 91 94 96 100 105 107 308 109 le3Avt.OperatagCorUm3 Sod:CalS 170 216 266 309 353 402 439 480 523 56S 611 654 700

1993CoS000 170 17S 182 II I8 133 178 173 I3 178 177 176 174 aPersousoClmosl s%dOp.Exp. 58 66 76 86 97 106 114 11 122 128 134 141 149Personnel Cort as % orOper.Rev. 29 23 27 26 25 24 22 21 20 20 19 IS ISPersralCoul/Employeel1933CaB000 11,675 13,112 14,071 13,8S 13,302 13,675 13,530 13,425 13,365 13,264 13,215 13,170 13,128Op.EzpPers.as % dOPer.Rev. 21 23 25 25 25 26 26 27 29 29 30 30 30TotalOp.Exp.as%dOper.Rev. 50 51 52 5 50 49 49 49 49 49 48 48 48IncwabeC.Dep.as % ofOpr.Rev. 56 56 6e 63 66 67 69 70 71 72 73 74 75Fluandog panlm (% of 1ev.):-Grossl lrolcashg 60 g3 -37 -5 -14 22 27 27 8 112 623 342 276-Debt trvke IS 8 59 45 43 58 56 43 61 n 463 256 136.Waddogcapital 129 59 70 70 59 63 44 30 34 53 267 144 107.Netoinkrnalcazhgem 213 184 114 95 77 135 122 105 142 230 1.149 637 489Peesl_oreserve 129 120 126 77 t6 71 5x 45 28 39 137 so 51

-Cu _towr eontributin s 10 a 10 35 15 14 3 0 0 0 0-Valrlzatljn 0 0 0 0 0 9 7 5 6 9 39 19 13-Borrowngs: fordlp 62 51 77 55 67 70 4 29 3S 3 123 152 142

local 93 10 3 0 0 0 0 0 0 0 0 0 0totwl 156 61 S0 55 67 70 60 49 58 11 123 152 142

OtberlocL bangeInCasb 116 90 7 -13 4 55 39 21 37 29 637 402 326Sel Fiasdag Ratbo 25 9 55 52 38 S s 62 32 132 686 380 303Debi ServleCover2ge. Ratio (tInmes) 1.1 2.1 1.9 2.1 1.3 2.3 2.2 2.5 2.3 2.3 2.5 25 2.6Aorklng Ratio 44 44 44 45 43 40 39 39 33 37 35 34 32Operating Statl 84 101 120 103 109 89 34 S 66 66 61 61 SSRORNebtR+altd Flxd.A.sr,(%) 2.17 -024 409 -2.7 -3.2 2.4 3.3 3.7 6.7 6.5 7.5 7.7 S.SDebt0Ndebl+eqult) d rati2 (%) 39 20 25 2S 32 32 33 33 31 27 23 20 148.l)Dbt-.t lUiby(Debt,LttlAab.lquty)() 211 33 42 46 50 Sl 51 50 48 44 39 36 30

( urreni RK.Ib 1 1 9 2.3 2.1 1.8 2.0 2.6 2.6 2.8 2.7 3.5 4.4 2.9 0QuKk R-AW 08 1 2 1 4 1.1 3.0 1.3 1.9 I 9 2.2 2.1 2.9 3.8 2.6P rn,lOd, I'sdm,en.to. I u.biit 0u ( 0 19 1 09 1.30 1.46 1.57 1.66 3.88 2.09 2.33 2.55 2.79

-enn4ee 1.1 I m Ioil erm I IUbilkI.re *0 40-. so - 3% 53% 52% 52% 52% 52% 50% 52% 54% 54% 62%20 (lkt 9"

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EMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESPSANTAFE 1 WATER SUPPLY AND SEWERAGE REHABILITATION PROJECT

Tabk 6: Smnsitvity Analysis(in Curment Con nilUon)

Page I of2

SAR BASE CASE WORST CASES: CONSTANT TARFFS IN 194 TERMS, A MARGINAL CASE A: CASEIB:SAMEAS CASEIC: SAMEAS

PROJECTIONS; CONSTANT CASE IA BUT WIIT CASE IA BUT WITHTARIFF INCREASES IMPROVEENTS IN UFW AND BELL COLLECTION EFFICIENCY: B: SAME AS A, TAREFFS IN 1994 SAR BASE CASE

TERMS, MODEST FURTHERTO MEET ACTION BUT NO IMPROVEMENT IN BILL COLLECTION; C: SAME AS B BUT HIGHER IMPROVEMENTS V(NTS I ACnON PLAN)

PLAN FINANCIAL IN UFW AND BILL IMPROVEMENTS IN IMPROVEMIENTS INScemario Summary TARGETS STARTING VALUE FOR BILL COLLECTION; D; STATIC NO DIPROVEMENTS COLLECTION UFW UFW

BASE CASE CASE A CASE B CASE C CASE D CASE IA CASE IB CASE ICSCENARIO ASSUMTIONS

Tariff tara: 16 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00arinff lcreas: 1997 2.50 o.o 0.00 0.00 0.00 0.00 0.00 oeouriT Increases: 1998 2.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00TariT l.crea*x: 1999 0.00 0.00 0.00 0.00 0.00 0.00 O.k 0.00ariff armc s: 2000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Tariff lcreases: 2003 0.00 0-00 0.00 0.00 0.00 0.00 0.00 0.00Tariff lacreuses: 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Tariff lncreases: 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Tarin lncreases: 2004 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Tariff Increases: 200S 0.00 0.00 0.00 0.00 0.00 0.00 00oo 0.00t1FW(%) I"4 (Actual) 39.72 39.72 39.72 39.72 39.72 39.72 39.72 39.72F'W (%) 2002 29.47 33.56 38.56 38.56 39.70 35.26 33.21 35.26

Hill Collection Eficiency (%) 14 SO 75 75 s0 75 75 75 75 -Dill Collection Efficiency (%.) 2002 92 81 75 90 75 3s as 92Second Phase Bank I.ous (I=es, O=No) I 0 0 0 0 0 0 0 IKEY RFSUl1TSDperSing Revenues (ColS million): 1996 230.199 221,927 221,927 221,927 221,126 222,723 223,261 222,723operting Rnenues (ColS million): 1991 319,3o 292,831 292*31 292,331 291,19 294,53 295,63s 294,563

Operating Resenues (Coll million): 2000 421,121 333,914 383,914 383,914 381,084 386,744 338,631 386,744Operating Revenues (ColS million): 2002 530,413 491,060 491,060 491,060 486,7S0 493,SU 492,105 493,983Workiag Espeass (COlS million): 3996 33,311 89,S56 39S,56 39w56 89943 39,334 S9,002 39,334Working Expenses (CoIS millioa): 199I 110,723 114,500 114,500 114,500 114,739 113,131 112,313 113,131Working Expenses (CoIlS illion): 200 135,761 142,303 142,303 142,103 142,739 139,776 133,364 139,776W'orking Expenses (COIS million): 2002 164,011 175,492 175,492 175,492 176,416 171,171 168,59 171,171Net lmc(Dec) ia Cash: 1996 22,609 -33,103 -37,223 -36,732 -37,326 -29,554 -23,901 -23,820Net Isc(Dec) i Cash: 197 4,434 -20,332 -27,251 -27,009 .28,307 -15,313 -14,160 4,620Net lac(Dec) ia Cash: 1993 s5,727 42,421 33,739 33,929 32,203 50,253 52,023 61,596Net lac(Dec) in Casi: 2000 55,793 -64,605 -2S,329 -29,ss7 -21,336 -51,359 -43,177 -34,114Net lnc(Der) in Cash: 2002 38,356 -51,65 -73,915 -74,455 -79,06s -9,404 -6,S21 -2,750

ccumulatd Cash Surplus (1996) 66,516 56,102 50,002 51,071 49,157 61,270 62,260 69,804ccumulated Cash Surplus (I997) 70,950 35,220 22,751 24,062 20J50 4,953 48099 63,13

Accumulated Casi Surplus (3993) 156,677 77,641 56,540 57,991 53,03 96,216 100,128 124,779Accumulated Cash Surplus (2000) 290,951 2,342 6,604 6,413 7,892 45,230 54,827 105,419Accumulated Cash Surplus (2002) 413,602 -48,309 -156,433 -155,649 -173,4S4 26,100 42.244 111,931W orking Ratio (%) (196) 45 48 4S 43 48 47 47 47

Worksng Ratio (%) (1997) 43 47 47 47 47 46 46 46

WIorking Ratio (%) (I9) 40 45 45 45 45 44 43 44W orking Raio (%) (2000) 39 45 45 45 45 44 43 44Quick RaI.. (1996) 1.1 1.0 1.0 1.0 1.0 1.1 1.1 11Quick Ratsu(1997) 10 0.7 0.7 0.7 0.6 0.3 0.3 0.9 1).s. R-e-enble 3994 (Act.ua) 181 131 181 181 1I1 181 131 131tin, R--rnal,l 21J02 69 143 201 201 201 110 110 53ROiR (-t.i o nI F. axd .. g,et. 2002 6.49 4.65 4.65 4.65 4.47 4.91 4.94 4.91

Page 120: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

COLOMBIAEMPRESA DE ACUEDUCTO Y ALCANTARILLADO DE BOGOTA ESP

SANTAFE 1 WATER SUPPLY AND SEWERAGE REHABILITATION PROJECTTable 6: Sensitivity Analysis

(in Current CoIS million)Page 2 oI2

CASE ID: SAME AS CASE IE: SAME AS SAME AS BASE SAME AS THE BASE CASE EXCEPT THAT SAME AS BASECASE IA BUT WITH THE WORST CASE TARIFFS ARE ALIGNED TO MEET LEY

SAR BASE CASE BUT Wmir SAR CASE BUT WrIH 142 REQUIREMENTS WITH LAGS: CASE CASE, BUTSARBASE CAE BASE CASE SUSTAINED 1: 10 YEARS FOR STRATA 1, 7 FOR

(ACTION PLAN) STRATA 2, s FOR STRATA 3,3 FORIMPROVEMENT IN STRATA 4, CASE 2:20 YEARS FORIMPROVEMENTS IN IMPROVEMIENTS IN STRATA I, IS FOR STRATA 2,7 FOR

Scenario Summary BILL COLLECTION BILL COLLECTION TARIFF LEVELS STRATA 3. FOR STRATA 4 BANK LOANMODIFED BASE ALTERNATE BASE CASES TARIFF NO PHASE 2 BANK

CASE ID CASE IE CASE STRUCTURE CHANGES ONLY LOANSCENARIO ASSUMPTIONSTariff Increases: 1996 0.00 0.00 3.00 0.00 0.00 3.00TariffIncreases: 1997 0.00 0.00 3.00 0.00 0.00 2.50Tariff Increases: 1998 0.00 0.00 2.50 0.00 0.00 2.50Tariff Increases: 1999 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2000 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2001 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2002 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2003 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2004 0.00 0.00 2.50 0.00 0.00 0.00Tariff Increases: 2005 0.00 0.00 2.50 0.00 0.00 0.00UFW(%) 1994 (Actual) 39.72 39.72 39.72 39.72 39.72 39.72UFW (%) 2002 29.47 38.56 29.47 29.47 29.47 29.47Bill Collection Efficiency (%) 1994 75 80 75 75 80 s0Bill Collection Efficiency (%) 2002 85 92 92 92 92 92Second Phase Bank Loan (I=Yes, O=No) I 0 1 1 1 0 1KEY RESULTSOperating Revenues (ColS million): 1996 223,929 221,927 230,199 227,273 229,331 230,199Operating Revenues (ColS million): 1998 297,086 292,881 321,345 331,941 337,596 319,880Operating Revenues (CoIS million): 2000 390,990 383,914 443,249 447,652 458,000 421,121Operating Revenues (ColS million): 2002 492,004 491,060 585,667 553,533 566,596 530,413Working Expenses (ColS million): 1996 88,311 89,856 88,311 88,311 U8,311 88,311Working Expeuses (ColS million): 1998 110,728 114,500 110,728 110,728 110,728 110,728Working Expenses (ColS million): 2000 135,761 142,303 135,761 135,761 135,761 135,761Working Expense (CoIS million): 2002 164,011 175,492 164,011 164,011 164,011 164,011Net Inc(Dec) in Cash: 1996 -27,781 -29,158 -17,987 -19,853 -23,120 -22,609Net lnc(Dec) in Cash: 1997 -12,334 -10,929 3,093 18,173 18,024 4,434Net lnc(Dec) in Cash: 1998 54,809 58,501 87,543 99,023 104,406 85,727Net Ine(Dec) in Casb: 2000 7,932 -39,218 75,155 80,055 90,002 4,533Net Inc(Dec) in Cash: 2002 -256 -15,225 97,287 66,115 74,077 34,832Accumulated Casb Surplus (1996) 63,912 58,696 76,482 74,616 66,005 66,516Accumel2ted Cash Surplus (1997) 51,577 47,767 84,575 92,788 84,029 70,950Accumulated Cash Surplus (1998) 106,387 106,268 172,118 191,811 18,434 156,677Accumulated Cash Surplus (2000) 150,754 79,377 332,075 362,761 378,726 210,026Accumulated Cash Surplus (2002) 192,287 56,268 559,050 540,585 564,852 291,737Working Ratio (%) (1996) 46 48 45 46 45 45Working Ratio (%) (1997) 45 47 43 40 40 43Working Ratio (e) (1998) 43 45 39 38 38 40Working Ratio (5/) (2000) 42 45 37 37 36 39Quick Ratio (196) 1.1 1.0 1.2 1.2 1.1 1.1 -Quick Ratio (1997) 0.8 0.8 1.0 1.1 1.1 1.0 Days Receivhbl.: 1994 (Actual) 181 181 181 181 181Days Receivable: 2002 ItO 70 53 53 69 69ROR (%) on Niet Fixtd Assets. 2002 5.10 4.65 8.49 7.32 7.80 U -'

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- 115-ANNEX 11

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 11 Water & Sewerage Tariff Structure and Issues

I. TARIFF STRUCTURE

1. The tariff rates and structure for water and sewerage services in Colombia are based on theprinciple of cross subsidization to allow the provision of basic services at affordable prices to the poor.For this purpose, customers are classified as residential, mixed (residential and commercial use),commercial, industrial, and official users. Prior to the institutional changes that occurred in 1991 (seeChapter 1), tariff rates and structure were approved by the National Tariff Board (Junta Nacional deTarifas). Now the newly established Regulatory Commission is empowered to carry out this function.EAAB also provides bulk water to some neighboring municipalities. Commercial and industrial usersheavily subsidize the residential users and bulk water sales. The average combined water and sewerageresidential tariff for 1993, including fixed charges, was Col.$ 225/cubic meter (about US$ 0.29/m3). Onthe other hand, average tariffs for commercial and industrial users were Col$ 560 and 620 respectively.The overall average tariff was Col.$ 340 per cubic meter (US$ 0.43/m3) which is below the estimatedAverage Incremental Cost (AIC) of Col.$ 434 per cubic meter (US$ 0.55/m3) of services withoutincluding the proposed investments in Santafe I.

2. The residential tariff has six levels or strata, based on the perceived cost and location of the houseaccording to the classification of the residential district. The stratification is based on the perception of thesocio-economic capacity of specific areas as defined by the local authorities of the capital district. Thepoorest class would be classified in stratum number one and the wealthiest in stratum number six. Thestratification system has had many flaws as it lacks transparency and the classification of certain areas hasbeen influenced by political considerations. Residential consumers face a minimum monthly charge for aminimum consumption level (20 m3), which varies by a factor of 100 from the lowest to the highest incomegroups, plus a variable tariff based on actual consumption and stratum. Connection charges, includingmetering, are based on the diameter of the house connection and the stratum.

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- 116-ANNEX I 1

3 The residential tariff structure of EAAB is presented in Table I below:

TABLE 1: TARIFF STRUCTURE FOR EAAB---RESIDENTIAL BLOCK---OCTOBER 1993

Stratum Fixed Consumption blocks- range Sewer.Charge Col. $ per m3.

Col.$ 0-20 m3 21-40m3 Above 40m3 Percent.

1 123.800 24.765 86.667 315.707 50

2 619.013 55.694 123.800 315.707 50

3 2,475.971 86.667 167.140 315.707 50

4 4,333.023 148.567 210.471 315.707 50

5 8,666.054 210.471 253.808 315.707 50

6 12,380.061 272.374 297.096 315.707 50

1 US$= Col $ 782

A. Tariff Structure Characteristics and Needed Changes

4. The main characteristic of EAAB's residential tariff structure is a disproportionately high fixedcharge (which accounts for 40% of operating revenues), large consumption ranges, a high minimnumconsumption allowance and lack of progressivity for high consumption through the fixed charge. The tariffstructure lacks appropriate balance among major categories of consumers; high fixed charges discouragewater conservation as large consumers observe in practice a reduction in the average cost per cubic meteras consumption increases. There are two steps that EAAB needs to take with respect to changing the tariffstructure in the near-terrn. The first would be to eliminate the three-tier structure and have a simpler two-tier structure with a minimum cut-off of around 20-25 m3, and charge all remaining consumption at asingle higher tariff. This would enable EAAB to increase revenues by a substantial amount withoutadjusting the level of tariffs themselves. The second step would be to increase the average tariff throughthe volumetric portion of the structure without increasing the fixed fee component. This could be donewhile still retaining the relative progression of tariffs across the strata This would encourage greater waterconservation and would still permit the lifeline consumption for lower strata.

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- 117-ANNEX I 1

5. Table 2 shows details of the analysis of tariffs, subsidies and costs across the different classes ofconsumers and details the progression over the forecast period. The main conclusions from this analysisare as follows:

* In general, all Bogota users pay approximately 12% lower than the average incremental costsof providing the services;

* service to the surrounding municipalities is heavily subsidized, and EAAB has now begun aprogram to adjust the tariffs rapidly to the levels prevailing in Bogoti. However, even with theadjustments that have been agreed with the municipalities concerned, it will take several yearsuntil the end of this decade to achieve some parity with the Bogoti tariff levels;

* Industrial and commercial consumers pay substantially higher tariffs than do the residentialcustomers, over twice the average incremental costs at the prevailing tariff levels.

* Customers in the three lowest strata account for about 50% of consumption while representing63% of the accounts in 1993. These proportions are as the newer accounts are being generatedprimarily in the lower strata. For example, by the end of the decade, in the year 2000, thethree lowest strata would represent 70% of the accounts in Bogoti and would consume 56% ofthe water sold.

* The three lowest strata will continue to remain heavily subsidized;* The other strata will continue to pay average rates between 15-60% higher than the average

incremental costs.

6. EAAB is aware of the shortcomings of the present structure, particularly as the need forsubstantial new investments becomes acute. Consequently, EAAB is preparing to carry out a detailedtariff study with the objective of determining and putting in place a new tariff structure to achieve a welldesigned tariff that will satisfy the financial needs of EAAB with an average tariff at least equal to the AIC,discourage waste, establish a well balanced cross-subsidy to protect the poorer residential users, haveequity for the commercial and industrial users and further arrest the subsidy to municipalities through thesale of bulk water. The tariff study, terms of reference for which have already been reviewed by the Bank,will commence shortly, in order to produce a suitable set of recommended actions by the end of 1995. Asdiscussed in the main text, agreement was obtained at negotiations on the implementation of the study andon EAAB and the government ensuring that a new structure and level of tariffs will be in place by 1996.

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- 118 -ANNEX I I

tlMPRrs DE ACUlDUCT73 Y ALJCANTARRIADO Dl UOGOTA ESP

SANTrAF1 I WATER AND SVIwTRAGr PROJECT

CONStoNMON, REVEIS,n TARlrFs * SUBStDrTS ANALYSMS BY US1R CLASXS1A.M.d F.r.e.... t

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- 119-

ANNEX 12

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 12 Responsibilities for Project Implementation

1. Responsibilities for overall project coordination and for implementation of its distinct componentsare presented diagrammatically in Attachment 1. Coordination between different functional areas will bethe responsibility of the Santafe I project Coordinator, a senior manager of EAAB's staff, highlyexperienced in management of large scale projects, reporting directly to the General manager. He will beassisted by an external project coordination unit which has already been hired for that purpose and is tofollow-up and monitor the progress of each activity of all the project's components, including physicalprogress, action plans and monitoring indicators of the project. It will also be responsible for design andsupport of the information system for monitoring and corrective action advise different areas of EAAB onactivities related to project implementation, formulate recommendations for specificcorrective/consolidation measures and will be responsible for preparing all progress reports for EAAB, forthe interministerial committee established under the Performance Plan and for the Bank.

2. The Planning Vice Presidency of EAAB will assist the project Coordinator and the coordinationunit, as required, and will support the General Manager of EAAB in oversight of the work of thecoordination unit. It will also be responsible for the execution of the studies under the project, to be carriedout by local and foreign consulting finms, and for implementation of the environmental component.

3. The staff attached to the Secretary General of EAAB will focus on effective functioning of theprocesses of bidding and contracting and provide all other legal services as required.

4. Coordination of preparation of designs, specifications, bidding documents (both within thecompany and by consultants) and supervision of works, as well as provision of technical assistance, will bethe responsibility of the Technical Vice Presidency. A significant portion of the complementary designswill be carried out by consultants, as has been the practice of EAAB for many years. Supervision of workswill be carried out by consulting firms, in accordance with the requirements of the new procurement law(Law 80 of 1993).

5. The Vice Presidency of Operations will be responsible for coordination of implementation ofrehabilitation works, including the rehabilitation of the 2 m diameter Tibito pipeline and the Tibito watertreatment plant.

6. The Administrative Vice Presidency will be responsible for training and for acquisition of landrequired for project implementation.

7. The Financial Vice Presidency will be responsible for ensuring continuity of the new integrated anddynamic approach to anticipating and avoiding cash flow and financial viability issues, observing cost,revenue, debt and intemal cash generation parameters, as well as for availability of the counterpart fundsfor project implementation as scheduled. The Financial Vice Presidency will also be responsible for

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- 120-ANNEX 12

ensuring efficiency according to the parameters of the Performance Plan in management of accountspayable and receivable, in continuing and promptly completing the improvement of the financial, costaccounting and information systems.

8. Detailed description of the duties and procedures of perfbrmance of the project coordination unitand of all other units involved in project implementation are being specified in an Operating Manual whichis currently being prepared .

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COLOMBIASANTAFE I WATER SUPPLY ANI) SEWERAGE REIIAIIILITATION PROJ ECr

ChIAIT OF IRESIPONSIBILITIES FOR PROJECr IMPLE.MENTATION

Ccncral Manger

Magacmnca Committcc | --.. .. E.itena Auditing

EMani Ptojcd Coo'dimlium Project Co ha~~~~~~~~~~~~~~~~Pijcdi Follow up ludcpcadcoi| Xt | ~~~- - --- - - - --. . Pro jc Cord Camma .| psjstF ltocl

LAgal anA Cuadcti,_ s__ r__ I I

bumiiSk,caabcaina *aaiMnn.___ neaam

I-tixti~ ~ ~ ~ ~~~~~" Iyd Stiatsli | CS l| ctttiw lmafinn

lodIbdi m 5da e -L Ai. DqtV tw Poa li atie -oe kivml l tx tyelunin

TOi4 Qmlity Phouau a UW Pw I

AA i -nistive | i ca iapeeqo elical | | gvi&qi y of Courci.l | Visgs c9pic | | Vkcep..iy | priccpwcsiiaacy c T Vdcqycp-idomcy |

opm ftioad |ndilLdicoa SIF |emlit | BAmeatE ciploec .0--6 Jt4e g _

ludibdiond lndiwiami Toch~~~~~~~~IAuk maa Tocahcl Aauiance Aahiid uatacc

Training AcqWswma" ftDiwa Pogrmunin and Cairal of Avivoq &ad Sm mavim of

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~k.

~~~~~~~~~~~Smdy ydwko W et se$"_D-73Pfti S" d0 m am

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- 122-ANNEX 13

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 13 Project Implementation Schedule

The following chart and table detail the forecast implementation schedule for the project,including the detailed cost breakdown by component and sub-component. The cost tables formthe basis for the project cost estimates shown in Annex 8, and used in the financial and economicanalyses.

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ColombiaSantafe I Water Supply and Sewerage ProjectProject Implementation Schedule1994 1 1996 1 1996 1 1997 1998 1 1999 2000 2001 2002

ID Task Narme 01 0Q20Q30Q40Q1 1021Q3104Q1 0Q2JQ3JQ4JQl JQ2Q3Q4Q1 0Q20Q30Q401 JQ2l030C 4Q1 I021031 024301 lQ2Q31Q40Q1 0Q20Q3I BOARD PRESENTATION * 6/16

2 LOAN EFFECTIVNESS DATE * U1

3 A. VULNERABILITY CONTROL .

4 1. Rehabilitation of the 2m Tibito pipeline

6 2 Rehabiliation of Tibito treatment plant

6 3. Construction of alternale Usaquen tunnel _ _ _

7 B. PRIMARY SEWERAGE & DRAINAGE SYSTEM I v

8 1 Bogota river interceptor, Torca - Salitre Section

9 2 Const of main S & D collectors & canals _ __ _ _ _ _ _ _ ___ _ _ _

10 3. Construction of pumping stations .. __ to

11 4 Land acquisition

12 C. PRIMARY WATER DISTRIBUTION SYSTEM v

13 1 Primary distribution mains

14 2. Storage reservoirs

15 3. Pumping stations .

16 4 Land acquisition

17 D. SECONDARY WATER & SEWERAGE NETWOR v

18 1. Secondary & local water networks _!

19 2. Local sewerage networks .

20 3. Secondary sewerage networks _______

Task Surnrnary v Rolled Up ProgressProtect SANTAFE I, COLOMBIA PrgesRolled Up TaskDate 3/7/95 Progress R

Milestone Rolled Up Milestone 0

Page 1

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ColombiaSaintafe I Water Supply and Sewerage ProjectProlect Implementatioin Schedule19919 9 995 1996 1 9S 1993 1999 2000 2001 2002

ID Task Name 0102030Q40Q1 213Q411 |Q2|Q3|Q41QI IQ21031041QI IQ2103134401 2Q23Q3141Q0 3Q20Q31Q42Q2102030401020321 4 Domestic W & S connections ,m i22 E. REHABILITATION WORKS l

23 1. Rehabiltlation of water systems

24 2 Rehabilitation of sewerage networksII

25 F. INSTITUTIONAL STRENGTHENING r V

26 t UFW program

27 2 Water conservation program : .

28 3. Training program

29 4 Laboratory, O&M and communic equipment I -

30 5 Data processing equipment & software a _ _ _ _ _

31 G. CONSULTING SERVICES & TEC. ASSIST. r .I

32 I. Designs & TA tor Santafe I works

33 2. Supervision of Sanlale I works

34 3. Additional studies and consult. services I36 H. ENVIRONMENTAL COMPONENT

36 1. Wetlands protection program

37 2. Wetlands management

38 3 Mitigation plan

39 4. Voluntary resettlement .I_9

Task Sumnary _ Rolled Up Progress

Project. SAHIAFE I. COLOMBIA Progress Rolled Up TaskDate 3/7/95

Milestone Rolled Up Milestone C

Page 2

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- 125 -

ANNEX 13

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Page 132: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

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- 127-

ANNEX 13

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- 128-ANNEX 13

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- 129-ANNEX 13

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- 130-

ANNEX 13

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- 131 -ANNEX 13

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Page 138: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

SAM aM". 19 US$Ed& VAIISMC- -f es

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Page 139: World Bank Document · SINA - National Environment System SSPD ... E. ECONOMIC EVALUATION ... E. MONITORING AND IMPACT INDICATORS

- 133 -

ANNEX 14

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 14 Monitoring and Impact Indicators

1. The performance of Santafe I project and of EAAB will be assessed by analyzing thelevel of compliance with the action plan set forth in the following tables. Two types of indicators areused in the action plan: a) monitoring indicators which reflect estimates at appraisal for milestones ofaction plans, and performance and/or progress targets of the project and EAAB and; b) impactindicators by which achievement of project key objectives will be measured.

2. The institutional improvement action plan is defined in Table 1, and will be monitoredby comparing the estimated key events and milestones with the activities actually performed.

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- 134-ANNEX 14

.:Tablel I!WbxtitltonImprvmetActdon pan

Activity Latest Date for Compliance

A. Conumercial. Financial and Managemnent Infornation SysInstallation

1. Complete System Framework Study [Part G.2(c)(i)] February 1, 19%2. Study Tour [Part G.2(c)(i)] February 28, 19963. Feasibility Study [Part G.2(c)(i)]

Award Contract June 1, 1996Complete Study Decemnber 15, 1996

4. Commercial Info. System Design and Implementation [Claims,Invoice & Suspension Modules, Part G.2(c)(ii)]

Award Contract December 15, 19%Complete Implementation November 30, 1996

5. Financial Information System Design and Implementation(Financial and Cost Accounting Modules, Part F.5)

Award Contract April 15, 19%Complete Implementation October 30, 19%

6. Design and Implementation of Information Management System(MIS, Part F.5)

Start of Implementation June 1, 19977. Hardware Supply (Part F.5)

Award Contract February 1, 19%Complete Supply and Installation September 30, 1997

B. Tariff Restructuring-Part G.2 (d) of Project1. Complete Tariff Study March 31. 19952. Begin Implementing study Recommendations June 30, 19963. Complete implementing fiist phase of tariff restructuring, asagreed by the Govt. and the Bank September 30, 1997

C. Institutional Improvement: Strategy Development and Implementation ofthe Institutional Adjustment Process

1. Set Up External Steering Committee-Part G.2 (a) January 31, 19962. Institutional Adjustment Process-Part G.2 (a)

Open Bid for Institutional Adjustment Study January 31, 1996Award Contract April 30, 1996Begin Adjustment Study May 30, 1996Complete Adjustment Study April 30,1997Complete preparation of adjustment action plan Novemnber 30,1997Start implementation of adjustment, if approved byColombian and Capital District authorities, and by theBank January 1, 1998

3. Set up EAAB's Environmental Protection Committee-Part F.6 of January 31, 1995the Project

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- 135 -

ANNEX 14

3. The performance in implementing the physical project works will be assessed byannualy monitoring physical targets achieved, in accordance with the program defined in Table 2.

TABLE 2: Performance Targets

Calendar YearCOMPONENT 1994 199S 1996 1997 1998 199 2000 2001

A. Vulnerability ControlRehab. of Tibito treatment plant Design Initiate Complete

construction construction.____ ________ _________ by July 1996 by End 1998

Rehab. of the 2 m diam. Tibito pipeline Initiate Completeconstruction rehabilitatioby July 1996 by December

1998Construction of Usaquen backup tunnel Begin design Complete Initiate Complete

by December design by constructio constructi1996 May 1998 by January by

1999 December______ ____________ ___________ _________ 20001

B. Main sewerage network# of kilometers of pipes installed 5.3 21.07 9.9 5.1 7.4 3.1# of kilometers of Bogota River Interceptor 3.5 5.5 3.# of kilometers of drainage canales installed I 1.1 6.7 8.7 0.3 6.2 6.C. Main Water Distribution Pivelines# of kilometers installed 36.8 18.5 1.3 17.5 35.9D. Secondary networks# of water connections (Santafe 1) 28073 28073 28073 28073 28073 39635# of sewerage connections (Santafe I) 41500 31700 31700 31700 31700 31700E. Rehabilitation of water & sew.# of Ioms rehabilitated (water) 45.0 45.0 45.0 45.0 45.0 75.0# of kms rehabilitated (sewerage) 8.5 7.2 7.2 7.2 7.2 9.5F. Institutional strengtheniContract out domestic meters supply,installation and maintenance to private sector

- Prepare bidding documents By march 96- Open Bid May 96- Concesion contract award October 96- Initiate contract implementation December 96

UFW reduction activities- # of meters connected (by 24000 12000 12000 12000 12000EAAB)- # of meters connected (by 126000 108000 108000 108000 108000Subcontractors)- # of city sectors UFW studies 28 33initiated (cumulative)

H. EnvironmentalFamilies resettled under Part H.2 of the 35 30Project

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- 136-ANNEX 14

4. The institutional and financial performance of EAAB will be closely monitored. In addition tothe annual financial reports, the indicatores defined in Table 3 will be used to assess the state of thecompany, since they reflect the operational, financial and commercial efficiency of the company'sperformance. Performance results will be discussed during annual reviews, and if warranted, measuresto achieve the action plan targets would be formulated in these reviews, based on actually achievedperformance levels.

TABLE 3: Targets for aOperaonal, Finaa aid Commercial Indi;at;r ; . . . . . .i ..............

______ ______ Calendar Year_ _ _ _ _ _

INDICATOR 1994 1995 1996 1997 1998 1999 2000 2001

UFW Index* 40 39 37 36 34 32 31 2Working Ratio*7 44 45 45 45 45 45 40 401Quick Ratio*8 1.19 1.43 1.00 1.00 1.10 1.10 1.10 1.1Collection /Billing Ratio9 * 60% 66% 73% 80% 88% 92% 92% 92%

* Loan Agreement Covenantsl0

Notes: (i) Working and Current Ratios-Year end figures measured once a year; (ii) UFW andCollection/Billing Ratio-year average figures measured on a quarterly basis.

5. Impact indicators: Table 4 presents the impact indicators which will be used for Santafe I.Five objectives: poverty alleviation, flood control, environmental betterment, vulnerability control andefficiency gains will be assessed through the indicators shown. Annual reports will include the actualindicator values and the annual reviews will include a discussion on the level of the achieved impact, aswell as on problems encountered and their proposed solutions.

7 Working Ratio defined as Ratio of working expenses, prior to depreciation and interest charges, and including annualpayments to existing pensioners, payments into the EAAB Pension Fund, and annual transfers to external pension fundsunder Law 100 to operating revenues prior to subsidy transfers and extra-ordinary income (including income fromexcess liquidity balances)

8 Quick Ratio deftned as the ratio of liquid assets (cash and bank balances and short-term investments readily convertibleto cash in three months) and 30% of accounts receivable to current liabilities due and payable within one year, includingloan amortizations due and payable.

9 Collection/Billing Ratio is the ratio of amounts collected in the current year to the amount of billings effected during theyear, and excluding collections of prior receivables.

° In the Loan Agreement, single maximum or minimum targets are stipulated for specific years, while the above tableshows the expected values for the targets varying from year to year.

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TABLE 4

SANTAFE I PROJECTIMPACT INDICATORS

Objective Poverty aJleviation Flood control Environmental Vulnerabilily Efficiency

Description Number of new Ncw neighborhoods Wedand protection Vulnerable components

connections in low drained in target areas rehabilitated or cons- Production Billing

income areas (Strata 1-3) uucted. costs Costs

units J households connected I of hectres and I of additional hectares Date of compliance US$/m3* US$/m3*

population benefited Protected produced billed

Baseline Connections in low income Total coverage of popul. Not applicable 0.36 0.27

1"93 areas: 555.589 Not available none protected (on Dec/3 1) (on Dec/31)

Slatistlkal parameters Year Water sewerage Year hecuares popubtion

1990 31883 not availab. not applicable not applicable

1991 27092 not availab.

1992 8973 not availab.

1993 not availab. 1993 not availab not availab

Coprative data 1994 1994 1994 Availability of:

foI1owun proJct' 1995 199. 1995

lmpkmntatlo 19961 1996 199 Civil Works Date

1997 1997 1997 Z m Tbai pipeline * JJJ_________ _________ __________________ ~~rehabd ii a ed. __ _ _ _ _ _ _ _

1998 1998 1998 Tibio plana rehabilitaed.

1999 1999 1999 Backup Usquen tunnel_____ _____ ___________ constncted

II ~~~~~~~200 2000

Rtsponsibe DepArtment in Co ocial P0lan Planing G. Manager Advisor Financial FianialEAAB _

Ni1e: Asswunes eltcNivnces ,Sepuenaber 1995' I USS - COL. $100

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- 138 -ANNEX 15

ColombiaSantafe I Water Supply And Sewerage Rehabilitation Project

Annex 15 Limits on Types of Procurement and Prior Review Thresholds

(US$ 1,000)

Type of Prior Review ContractDescription Procurement Limit Value

CIVIL WORKS: ICB All > 4,000

NCB First two contracts each 350 to 4,000year

Price quotations from at None < 350least three local bidders

GOODS: ICB All >250

NCB First two conhacts each 50 to 250year

Price quotations from at None < 50least three local bidders

CONSULTING Local and foreign All >100SERVICES BY FIRMS: consulting films

CONSULTING Local and foreign All >50SERVICES BY individual consultantsINDIVIDUALS:

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- 139-ANNEX 16

ColombiaSantafe 1 Water Supply And Sewerage Rehabilitation Project

Annex 16 Bidding Packages Agreed During Appraisal

TotalYear Bid No. Component Bid Content Contract Contract ProcurementStart Duration (Years) Cost (US$ Method

Million)1995 1 B1 Limas Interceptor 1 1.06 LCB1994 2 C1 Agaberto Majia Bosa-

Kennedy Line 1 1.36 LCB1995 3 C1 Av. Ciudad de Cali-Suba

Line 1 0.37 LCB1995 4 C1 Av. Cundinamarca-

Suba Line 1 0.56 LCB1995 5 C1 Av. Primero de Mayo-Tindal

Sur Line 1 1.07 LCB

1995 6 Al Rehabilitation of the 2 mTibito Line 3

1995 C1 Stabilization of the 60"Tipito Line 1

C1 Calle 170 Occidental Line 1C1 Calle 170 Oriental Line 1C1 Autopista North Tramo ILine 1C1 Autopista North Tramo 2 Line 1

35.00 ICB

1995 7 B2 Sistema Selitre Terraceo 2 0.72 LCB1995 8 C1 Volador-Quiba Line 2

C1 Av. Ciudad de VillavicencioLine 1

C2 El Volador Tank 2C2 Quiba Tank 2C3 El Volador pumping Station 2

1.85 LCB

1996 1 A2 Rehabilitation of TibidoWater Treatment Plan 3 25.00 ICB

1996 2 B2 Salitre Alto Sector A 3 7.68 ICB1996 3 B2 Salitre Alto Sector B 3 6.94 ICB1996 4 B2 Castilla Interceptor 1

C1 Transversal 11 -Bosa Line 1C1 Lourdes-Vitelma Line 1C1 Las Lomas Line 1C1 Av. Centenaro Line 2C1 Vitelma-Jalisco Line 2

4.07 ICB

1997 1 A3 Alternate Usaguen Tunnel 3 15.00 ICB

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- 140-

ANNEX 16

TotalYear .CContract Contract ProcurementStartBid No. Component Bid Content Duration (Years) Cost (US$ Method

_ _ _____ _ _ _____________________ _____________ M illion)1997 2 B2 Torca Canal and Interceptors 3 9.87 ICB1997 3 B2 Saba-Tibabuyes Interceptor 2 3.11 LCB1997 4 82 Bosa Interceptor 2

B2 Tintal Ill Interceptor 182 Av. Cundinamarca Interceptor 2B2 Pinar de Rio Interceptor 182 Paraiso Interceptor 1B2 El Amparo Interceptor 182 Quebrada Yamasa-Alfonzo

Lopez Interceptor, Tunjuelo 2B2 Comuneros-Lorenzo

alcatruz Interceptor 21997 5 82 Jaboque Canal 2

82 Villa Gladys OrientalInterceptor 2

B2 Villa Gladys OccidentalInterceptor 2

B2 Rio Bogota Flood Control 383 Gibraltar Pumping Station 2

6.98 ICB1997 6 C1 Vitelma Monteblanco Line 2

C1 Monteblanco Pressure Line 2C1 Av. Villa Alsacia Line 2C2 Av. Tintal Sur Line 2C2 Jalisco Tank IC2 Jalisco Control Structure 1C2 El Castillo Tank 1

5.77 ICB

1998 1 B2 Guyamaral Canal 162 Santa Isabel Interceptor 182 Alsacia Interceptor 1B2 Fucha Bajo Interceptor 182 Drainage colector Dlagona 38

Sur-Av. Ciudad de Cali 1B3 Salitre Pumping Station 2

5.3 lCB

1998 2 Ci Av. Tibabuyes-Suba Line 2C3 Monteblanco Pumping Station 2

1.52 LCB

1999 1 B1 Rio Bogota InterceptorTorca-Salitre Section 3 13.80 ICa

1999 2 82 Tindal IV right Interceptor 2B2 Tindal IV left Interceptor 282 Britalia Interceptor 2

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- 141 -

ANNEX 16

TotalYear _ Contract Contract ProcurementStartBid No. Component Bid Content Duration (Years) Cost (USS Method

Million)62 Av. Cundinamarca Canal 2

5.37 ICB

1999 3 B2 Carrera 94 Collector 2B2 Av. Centenario Canal 2 4.16 ICB

1999 4 B2 Supply Canal and AtenuacionLagoon for Torca PumpingStation 2 5.27 ICB

1999 5 B3 Torca Pumping Station 3 4.61 ICB

2000 1 B2 Cordoba Canal 2B2 Tintal III Canal 2B2 Tinatl IV Canal 2B2 Alsacia Canal 2B2 Brtalia Canal 2B2 Santa Isabel Canal 2B2 Castilla Canal 2B2 Primero de Mayo Canal 2

4.43 ICB

2000 2 B2 Calle 37 Collector 1B2 FFCC-I Collector IB2 Carrera 102 Collector 182 FFCC-11 Collector 1B2 Fontibon Sector Collector 3

6.26 ICB

2000 3 C1 Avenida CundinamarcaVillavicencio Line 2 2.49 LCB

2000 4 C1 Wiesner Saba (Second Stage)Line 2 2.49 LCB

2000 5 C1 Av. Boyoca-Saba Tank Line 1C1 Saba Medio Sur-Norte Line 3C1 Northeast Primary Network 3C1 Av. Boyaca-North Zone Line 3C1 Calle 161 Line 2C1 Diagonal 172 Line 2C1 Av. San Jose Line 2 9.29 ICB

6 C2 Suba Tank 2 10.44 ICB

2001 1 C1 Av. Morisco Line 3C1 Calle 53 Line 3C1 Transversal de Suba Line 2C1 Calle 193 Line 3C1 Av. 7 Line 3C1 Av. Ciudad de Cali,

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- 142-

ANNEX 16

TotalYear Contract Contract ProcurementStart Bid No. Component Bid Content Duration (Years) Cost (US$ Method

Million)Section 2 Line 2

C1 Av. Tibahayes-Suba,Section 2 Line 2

C1 Av. Cundinamarca,Section 2 Line 2

C1 Av. de las Mercedes 25.07 ICB

2001 2 C2 Saba Mediosar Tank 1C2 Saba Medio Norte Tank 1C2 Northeastem Tanks 3C3 Northeast Pumping Stationers 1

2.77 LCB2001 3 Ci Western Zone to Suba Tank 3 10.31 ICB

Line

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- 143 -Colombia

Santafe I Water Supply And Sewerage Rehabilitation Project

Annex 17 Allocation of Loan Proceeds

The proposed disbursement categories, the allocation of loan funds for each of the fixed and floating ratesingle currency loans, and the disbursement percentages are as follows:

Category Amount of Amount of Total Loan % ExpenditureFixed Rate Floating Rate to be FinancedLoan Loan

(in US$ million).........................................................................................................................

1. Civil Works 26.8 17.9 44.7 40%2. Goods 31.7 21.1 52.8 40%3. Consulting Services 13.0 8.7 21.7 52%4. Training 0.5 0.3 0.8 52%5. Unallocated 15.0 10.0 25.0

TOTAL 87.0 58.0 145.0

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- 144-Colombia

Santafe I Water-Supply And Sewerage Rehabilitation Project

Annex 18 Disbursement Schedule(in US$ Million)

IBRD Fbcal Year and Quarter Disbursement During Quarter Cumulative CumulativeDisbursement Disbursement (%)

1996: 1 0.00 0.00 0.0

2 8.81 8.81 6.1

3 6.07 14.89 10.3

4 4.92 19.81 13.7

1997: 1 4.92 24.73 17.1

2 8.20 32.93 22.7

3 6.31 39.23 27.1

4 10.51 49.75 34.3

1998:1 10.51 60.26 41.6

2 17.52 77.78 53.6

3 6.13 83.90 57.9

4 10.21 94.11 64.9

1999: 1 10.21 104.33 71.9

2 17.02 121.35 83.7

3 2.89 124.23 85.7

4 4.81 129.05 89.0

2000: 1 4.81 133.86 92.3

2 8.02 141.89 97.9

3 0.27 142.16 98.0

4 0.46 142.62 98.4

2001:1 0.46 143.08 98.7

2 0.76 143.84 99.2

3 0.16 144.00 99.3

4 0.27 144.28 99.5

2002: 1 0.27 144.55 99.7

2 0.45 145.00 100.0

Key Dates

Project Start 1-Jul-94 Effectiveness 16-Dec-95

Board Presentation 9-Nov-95 Completion 30-Jun-02

Loan Signature 16-Nov-95 Closing Date 31-Dec-02

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IBRD 257A3

\,,,.'2x'-~~~~~~~~~~~~~~~~~~~~~~~~~__ 673

dl 75 70 6- COlOMSIA\CITY OF SANTAFE DE BOGOTA / /, \

, SANTAFE I WATER SUPPLY AND I 1 3

-"- , 0 t SEWERAGE REHABILITATION PROJECTPANAIAA \ | VENEZUELA POVERTY INDICATORS IN THE AREA OF PROPOSED

COLOMBIA \-7 SECONDARY WATER SUPPLY AND SEWERAGE NErWORKSSECTORS:

PrqNel '1e \ ? < USAOUEN (2SRA 046% NADEcUATE SERRVFES IPERCETACE OF POC)LPJTONI

' .' )SARNTAO FE AREARIOS UNEDOS 16 58@ 1 POOR PERSONS- IF[K(ENtAGE OF POPULATIONI

_SAN CRSTO`AL LO A PROPOSED ARE OF SECRY WAER SUPPLY AND SEWERAC4 NETWORKS- BRAZIL v-I USME ANTONIONARiO LAGOONS OR RESERVOCRS

CIJAE / TUNUUEUTO PENTEARANDA RRVERS 3 R 2 3 t -

- ~ PERU il rd K ENNEDY I CANDENA URBAN DEVELOPFENT ZCNE

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5,5.. 15 / o J0 55 _<,ENGATIVA R15 10, 65'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RTTRRTY

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13RO 25737

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COLOMBIA

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IbRD 25737

COLOMBIA ^ j'

ao I52 70- Fio CITY OF SANTAFE DE BOGOTA \t,o oobono

SANTAFE I WATER SUPPLY AND Ti-ntl ,SEWERAGE REHABILITATION PROJECT Patio

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PANAM4A VENEZUELA

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IBRD 25738

.05, ,,5-_

r~~~~~~~~

80 TM TT* EN~10 COLOMBIA

CITY OF SANTAFE DE BOGOTA

/ lo- SANTAFE I WATER SUPPLY AND

SEWERAGE REHABILITATION PROJECTPANAMA \ | VFNE_UELA PROPOSED STORMWATER DRAINAGE SYSTEM Ri. Bg..

COLOMBIA Flod C-o

P x,.l a. > ? Q EXISTING PUMPING STATION _ LAGOONS OR RESERVOIRS

C E...; PROPOSED PUMPING STAT ON EMBANIAMENTS

EXISTING CANALS RIVERS

_ *w4_ r (E . +, . EXISTIN4G COLLECTORS .. I.- U HYDRAULIC REHAIULTATLON OF THE BOGOTA RIVER

ECUADO7R / N BRA2IL PROPOSED S-TAFE V COLLECTORS FLOOD CONTROL OF IHE TUNJIUELO RIVER - '

EC/ADOR,f *._-- , P0 FUTURE COLECTORS URAN DEVELOPMENT ZONE

PERU . - COLLECTORS By PRIVATE DEVELOPERS ILOMETERS F

V

a

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A '

SEPTEMBER I95

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TBRD 25739

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-BRD 25740

80 75' 7O

COLOMBIA80 75N0 LAoS- CITY OF SANTAFE DE BOGOTA

PANAMA VENEZUELA SANTAFE I WATER SUPPLYANDCOLOMB;A ~S. . SEWERAGE REHABILITATION PROJECT - _

PROPOSED SECONDARY WATER AND SEWERAGE NETWORKS

r E k/ /R PRO70$ED SECONDARV WATER N EEAE N TYOK_ r_ ] LGCAONS OR RESERVOIRS

-0 BRAZIL ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RIERS -EQUADOR f ' URB;N DEVELOP7IENT ZONE

PERU )

sCt~ _S 8 75 / 70 SSEPERIW

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IBRD 257A1

I / ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~NRTHERN IG

COLOMBIA

EO' 7S 6S' CITY OF SANTAFE DE BOGOTASANTAFE I WATER SUPPLY AND

SEWERAGE REHABILITATION PROJECTIo' Vao PROPOSED SEWERAGE REHABILITATION WORKS

PANAMA R VENE7UELA SECrOR LATE \

COLOMBIA . I CEDRlTOS TRRVnCCONEEoN

S LAUR]E INTERAEPrOR P DRAVAUCCAPAC> ,RE.AE,JATON

5 pSA' - 9LBA ARO NA AL D CAE AL CALLE_AS SIRUCTURAL DEECITNCISE REPAIRS

N I.A A CAROLINA AND CANAL C,LLLEA

C .ORDOBA RESERVOIR

r Ts .F M SALITRE ALLEVIA-1ON COLLECTORS RVERS_ WEST SALITRE CANAL URBAN DEVEIOPRENT CZOE

O' N BRAZIL B SEARS COILECTOR,ECULAEXR / 'S j T 22 STREET COLLECTORS

/2L - - 191 *1 d ID CITY CENTER NETORKS

PERU C./ - CIGLIAZA (REEK

SEP7AER 'R5

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18R0 25742

8D 75 7D 55'70 \5

COLOMBIA

jI.- CITY OF SANTAFE DE BOGOTA

PNrvAMA 9 sI VENEZUELA SANTAFE I WATER SUPPLY ANDr COLOMBIA '< _ ) SEWERAGE REHABILITATION PROJECT

7 me,o.' PROPOSED WATER SUPPLY REHABILITATION WORKSPw, A Fo \ ?

( .. RENOVATON OF DAMAGED NETWORKS

RENO0VATION 0F NETWORKS DU T0.U r D- POPULATIONDENSY INCREASE

> E 8IL R ENOATON OF OLD NETWOKS

E. / JD LGOOONS 0R R_58R8Ol85 -a

/PERU ,.@7 ^ -- RNERS D1 2 35PERU 5 -~ URIAN DEVELOPMENT ZONE KILOMRS_

_ .' x 75'3 ZO' 7D^ SS' ___SE3TEX 19p,

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l MA( rj N';

Report No: 13;73F-> (COType: S'AR